Netflix Worth a Trade
Netflix (NFLX) missed expected subscribership by 24% and that used to never happen with the old NFLX.
NFLX was that one company among a handful like Microsoft, Google, and Apple that always beat whatever gaudy estimate that was thrown at them.
Times are different.
Tech has essentially been told to eat some humble pie.
Gone are the days of yore when a big tech firm could hire tech workers and give them a fake job just to keep “talent” away from other big tech firms.
Those were the golden years of 0% interest rate policies from the Fed and now the Fed has stopped subsidizing NFLX subscriber numbers.
The truth is that the company and its content aren’t that great especially nothing better than what is on Google’s YouTube which is free with ads.
No surprise that NFLX has rolled out an ad-tier version of its service which is another underwhelming strategy for a firm that used to be the torchbearer of digital content.
Netflix, which broadened its crackdown to include countries like Canada, New Zealand, Portugal, and Spain, in addition to the test countries of Chile, Costa Rica, and Peru, revealed it's planning "a broad rollout" of the policy this quarter that will include the US.
The ad plan, dubbed "Basic with Ads," comes at a cost of $6.99 a month in the US and serves as a complement to Netflix's existing ad-free tiers — the Standard plan ($15.49 a month) and the Basic plan ($9.99 a month.)
The company, which revealed the ad tier now has about 95% of the same content as ad-free plans due to new licensing deals.
It’s funny to see NFLX hype up its own password crackdown strategy.
When they had the mentality of abundance, they didn’t really care if whole villages were using the same password.
Now they suddenly care because growth is harder and harder to come by because the product has heaps more competition than ever before and its content doesn’t stick out as it used to.
Even Walmart and Target absorb write-downs for all the theft it experiences annually and theft still happens at a high rate.
Netflix going after password sharing as if it is some type of growth strategy underscores that its business model is more like in the 8th inning of a 9-inning game.
Where are the great ideas?
Management needs to answer to that instead of talking about their core businesses like it’s the fringes.
The stock dropped from $700 to $170 in late 2021 until mid-2022 and alarm bells were ringing inside of NFLX’s offices.
The rebound back to $320 was just a reversion to the mean because of an oversold position.
The next question is if NFLX really has a lot of juice left and I feel we are at another inflection point when the business model is weakening.
However, with interest rate cuts forecasted for later in 2023, I do believe the path to $400 per share exists along as we avoid global financial contagion or an invasion of Taiwan.
The stock is still too beaten down and I can easily visualize traders pumping up the stock to $420 only for investors to realize that a password-sharing ban is not a growth strategy and the quality of content not better than free YouTube isn’t improving by 30% every year.
This would be a good buy-the-dip candidate in the very short term.
