Netflix took a huge hit after the market close yesterday because their subscriber growth turned negative when a large net subscriber growth was expected. This is the downside of the subscription market. I wrote about the challenges of the subscription market not long ago and it’s coming to life.
Sure, part of it is that most everyone is sharing the subscriptions, but economic circumstances are challenging and more people are looking to tighten their budgets. While those on the affluent side of things aren’t completely experiencing the full face of inflation, the average person is feeling the pain and those folks comprise the largest portion of their subscribers. Add in that there are many streaming services available with different formats now and a storm is brewing. How many streaming services can the average consumer handle?
This scenario is the “canary in the coal mine” for subscriptions. Subscriptions will continue, but the continuous robust growth isn’t sustainable. As in the old fable, “bean stocks don’t grow to the sky”.
The subscription model will continue into the future, but the level of growth will continue to wane. The cardinal sin in growth equity investing is buying into an equity just when their growth peaks. The crowd running for the exits can be painful. There will be many trampled by the herd!
Be smart, be well-read, be aware and be successful
