- Summary:
- The Netflix stock price tumbled hard on Tuesday. Is NFLX a good investment or will the situation change soon?
The situation is changing for the smallest FAANG stock. The Netflix stock price continued its sell-off in the extended session after the firm published weak quarterly results. The NFLX shares crashed by over 25% to $258, in one of its worst days as a publicly-traded company. The decline means that the stock has now crashed by 63% from its all-time high while its market cap has dropped to below $120 billion. Other streaming stocks like Disney, Warner Bros. Discovery, and CuriosityStream also tumbled.
Netflix earnings review
The Netflix stock price has been under a lot of pressure as investors rotate from companies that did well during the pandemic to those that lagged during the period. They believe that companies that did well during lockdowns will see a sharp decline in growth as people go back to work. Other lockdown stocks that have tumbled in the past few months are Shopify, Block, PayPal, and Zoom Video among others.
Netflix share price crashed after the company published disappointing results on Tuesday. The company said that it lost customers for the first time in a decade. Precisely, it had a net loss of 200,000 customers in the first quarter. It attributed this loss to the fact that it deactivated its Russian clients after the invasion of Ukraine. That action led to a subscriber loss of 700,000 people in the country. The firm would have added 500k users if it had not deactivated Russian accounts.
The company missed on its top-line figures as its revenue came in at $7.87 billion, which was lower than the consensus of $7.93 billion. Its earnings-per-share of $3.53 was also worse than expected. In addition to Russia, the firm blamed this performance to password sharing, the ongoing return-to-work process, and the rising competition.
Therefore, as part of its remedy, Netflix plans to spend more on original programming. It also plans to continue its crackdown on password sharing. It could achieve that by limiting the number of devices available in a country. Most importantly, Netflix plans to launch a free advert-supported package in its international market.
Was Bill Ackman wrong?
In a recent article, I wondered whether Bill Ackman was wrong on Netflix. As you recall, Ackman came out swinging recently about the company. As its stock fell, he decided to buy the dip, citing the company’s valuation, strong brand, and the fact that it has an easy-to-understand model.
Therefore, Ackman’s Pershing Square share price is also expected to retreat after these results. He owns 3.1 million shares of the company. At the time, these shares were worth about $1.1 billion, which made him a top 20 investor in the company. After this sell-off, this stake is worth about $799 million, meaning that he has lost over $300 million.
The Netflix stock price finds itself under pressure. First, the company will likely boost its spending on developing new shows in the coming months. As a result, its profitability will likely continue slowing this year.
Second, it seems like competition is finally catching up on Netflix. The company faces increasing competition from the likes of Paramount+. Disney+, Apple TV+, CuriosityStream, Peacock, and Discovery+. Therefore, since these services work the same, there is a likelihood that the company will find it difficult to add new customers. I wrote about these concerns recently when I wondered whether NFLX had become too cheap or a value trap.
Still, there are reasons to believe that the Netflix stock price will bounce back in the long term. For example, while the company lost customers, the reality is that excluding its Russian impact, the firm did modestly well in a difficult quarter. Also, the company has a large total addressable market if it decides to have a crackdown on password sharing.
Netflix stock price forecast
The NFLX stock was in a tight range before the company published its quarterly results on Tuesday. It had found a strong support at $330. The company managed to crash below this support after the weak results. At the same time, it managed to move below all moving averages while oscillators have moved below the oversold levels.
Therefore, the Netflix stock price will likely continue falling in the coming weeks as investors attempt to move below $200. Such a move has happened in other stocks that crashed after earnings like DocuSign and Meta. It is becoming difficult for them to go back to their former glory.
