Netflix's stock plummeted more than 26% after the company announced fourth-quarter 2021 earnings on Jan 20, 2022.

Netflix's stock plummeted more than 26% after the company announced fourth-quarter 2021 earnings on Jan 20, 2022. Earnings per share (EPS) increased by 11.8 percent, exceeding expectations. Analysts predicted that earnings per share would fall 31.2 percent. Netflix's revenue increased 16.0 percent year over year, narrowly matching analyst expectations. The average revenue per subscriber on Netflix was $11.72. Average revenue per user rose year over year in every location where it operates, excluding the effects of currency rates.

It was the weakest quarter of sales growth in the previous four years. Worldwide paid streaming memberships, also known as global paid streaming subscribers, totaled 221.8 million in the third quarter, falling short of experts' estimates. In after-market trade, the company's stock dropped as much as 15%. Over the last year, Netflix's stock has returned 13.1 percent, trailing the S&P 500's 16.4 percent total return.

While the price has subsequently rebounded, the initial decrease appears to be linked to recent management recommendations. In the first quarter, investors can expect lower-than-average subscriber growth.

Investors anticipate a 2.5 million subscriber increase in the first quarter of 2022. Because Netflix typically adds millions more in the first quarter, this was far less than the market anticipated. In the first quarter of the last five years, Netflix has averaged an increase of 8.38 million subscribers. Netflix's estimated audience of 2.5 million is nearly 5.88 million lower than its average.

 By combining Netflix's $11.72 average income per user with 5.88 million fewer members, the company will lose $69 million each month in revenue, or $827 million yearly. Netflix's revenue in 2021 was $29.7 billion, thus the gap is merely 2.8 percent. However, because the majority of Netflix's incremental income goes to the bottom line, it becomes more significant. Netflix's net income was $5.1 billion. If you assume that $700 million of the $827 million went to net income, you're looking at a 13.7 percent deficit.

Netflix has a significant degree of leverage in general. Whether it has 100 million or 200 million users, its costs are virtually the same. As a result, the additional subscribers have a greater impact on profitability and cash flow than if the expenses were more variable. The number of subscribers has a significant impact on the stock price.

Netflix's global premium streaming subscriptions increased by 8.9% year over year, the slowest growth rate in at least 14 quarters. The number of worldwide users who have signed up for and paid for a subscription to get streaming services is represented by global paid streaming memberships.

Netflix is also investing in other forms of streaming entertainment, such as video games. Members may access games from within the Netflix mobile app, according to the business, which launched its mobile games on Android and iOS in November. In 2022, it intends to keep extending its gaming portfolio.

Netflix's strategy includes a focus on expanding its streaming subscription business overseas, as it is the company's primary source of income. By the conclusion of FY 2020, Netflix has crossed the 200 million mark in total global paid streaming memberships.