Shares of Netflix (NFLX) are plunging on Wednesday after the streamer announced a loss of 200,000 subscribers during the first quarter. This was the first subscriber loss it reported in over a decade. Following the news, several Wall Street firms cut their ratings on the stock, with both Bank of America and Pivotal Research double-downgrading Netflix to Sell-equivalent ratings from Buy. Moving in the opposite direction, however, Needham analyst upgraded the name to Hold from Underperform, citing the company's indication of plans to adopt a low-priced advertising tier over the next 18-36 months. 

RESULTS: Netflix reported first-quarter earnings per share of $3.53 and revenue of $7.87B, with consensus at $2.90 and $7.93B, respectively. The company also reported first quarter global streaming paid net losses of 200,000 members. Netflix also said it sees second-quarter earnings per share of $3.00 and revenue of $8.05B, with consensus at $3.01 and $8.21B, respectively.

In its quarterly letter to investors Netflix said that "Paid net additions were -0.2m compared against our guidance forecast of 2.5m and 4.0m in the same quarter a year ago. The suspension of our service in Russia and winding-down of all Russian paid memberships resulted in a -0.7m impact on paid net adds; excluding this impact, paid net additions totaled +0.5m. The main challenge for membership growth is continued soft acquisition across all regions. Retention was also slightly lower relative to our guidance forecast, although it remains at a very healthy level (we believe among the best in the industry). Recent price changes are largely tracking in-line with our expectations and remain significantly revenue positive."

"For Q2'22, we forecast paid net additions of -2.0m vs. +1.5m in the year-ago quarter. Our forecast assumes our current trends persist (such as slow acquisition and the near-term impact of price changes) plus typical seasonality (Q2 paid net adds are usually less than Q1 paid net adds)."

SELL NETFLIX: Pivotal Research analyst Jeffrey Wlodarczak double-downgraded Netflix to Sell from Buy with a price target of $235, down from $550. The analyst called the first-quarter subscriber miss and weak subscriber guidance "shocking." He also reduced subscriber forecasts and pushed back his profitability forecasts substantially, which led to the nearly 60% reduction in the firm's target price. Wlodarczak views Netflix considering an ad supported cheaper version as a net negative, saying it "cheapens the brand" and the product versus the "current great consumer experience and introduces ad volatility to results." From a stock perspective in a period of rising interest rates, pushing pack profitability materially "is likely to not be welcomed by the investment community," the analyst argued.

Bank of America analyst Nat Schindler also double-downgraded Netflix to Underperform from Buy with a price target of $300, down from $605, after the company reported negative subscriber additions. All regions saw declines in paid net adds except Asia-Pacific, Schindler noted. The analyst believes it will take a while for investors to believe that Netflix can return to growth. The company is starting to pivot from a long-term growth and margin expansion stock to a revenue diversification story, Schindler wrote.

Meanwhile, JPMorgan analyst Doug Anmuth downgraded Netflix to Neutral from Overweight with a price target of $300, down from $605. Netflix reported a "sea change quarter" in which company "essentially conceded to every key point of the bear thesis," Anmuth told investors in a research note. Management acknowledged that relatively high household penetration, account sharing, increased competition and COVID pull-forward are giving way to fundamental weakness, the analyst noted, adding that he believes near-term visibility is limited, with his 2022 net subscriber estimates coming down sharply from 16M to 8M. "There's not much to get excited about over the next few months beyond the new, much lower stock price," he wrote.

Piper Sandler, Stifel, Oppenheimer, Atlantic Equities, KG Securities and UBS also downgraded the stock to Neutral-equivalent ratings following last night's quarterly report. Additionally, Deutsche Bank, Barclays, Credit Suisse, BMO Capital, Truist, Baird, Canaccord, Cowen, Guggenheim, Evercore ISI, and Wedbush lowered their price targets on the shares of the streaming service giant.

ADDITION OF ADVERTISING TIER: The most vocal bear on Wall Street is not as bearish on Netflix following last night's report, as Needham analyst Laura Martin upgraded the stock to Hold from Underperform. The analyst cited the streamer's decision to adopt a low-priced advertising tier over the next 18-36 months following its subscriber losses. Nonetheless, she remains concerned about slowing revenue growth, employee churn, and lower operating margin guidance at Netflix. Martin added that consumers care more about Disney (DIS) making better films and Discovery (WBD) making better shows than Netflix instead of the latter having improved its content relative to three years ago as discussed by its management on the call.

PRICE ACTION: In Wednesday morning trading, shares of Netflix have dropped over 36% to $221.86. Shares of Disney, Warner Bros. Discovery, Roku (ROKU), FuboTV (FUBO), Paramount (PARA), and Spotify (SPOT) are also trading down following Netflix's Q1 report.