What To Do About Netflix Shares?
It’s quite the irony that Netflix’s earnings report came smack dab in the middle of Hollywood’s meltdown as the contract standoff between writers and studios threaten to implode a Southern Californian industry that has been on life support for quite some time.
One’s famine is another’s fortune.
NFLX had a mixed earnings report so it’s not like it has been gangbusters for streaming platforms either.
They used to be a perennial tech growth company and now they are down to just 3% revenue growth which won’t cut it.
NFLX has been saved by the macro picture as traders scurried into tech stocks from early 2023 while investors bet on a Fed pivot and a reversion to the mean after a horrible 2022.
The business itself isn’t doing anything special like it used to, and they are also way too woke, but when they don’t have to be spectacular, it’s easier for the stock to elevate.
The brightest number of all was the addition of 5.9 million subs.
Netflix, which now boasts 238 million global subscribers, will keep benefiting from this password-sharing clampdown.
Some expected it to backfire, but viewers have flashed their wallets and signed up for the service.
The streamer boasted that “sign-ups are already exceeding cancellations” and that it is implementing the password policy across the world now.
Profitability is starting to become an issue for NFLX as they missed on revenue.
Streaming has become a worse business lately because the world is too saturated with content.
Another positive is that NFLX upped its free cash flow from $1.5 billion to approximately $5 billion for the year.
This is what mature tech companies are supposed to do.
Eventually, they will increase deliverables back to the shareholder in the form of buybacks and dividends like Apple (AAPL) and Microsoft (MSFT).
The company cited “lower cash content spend” amid the writers’ and actors’ strikes that have brought content production to an absolute standstill.
No more $9.99 ad-free plan.
Netflix axed its cheapest ad-free option in the US and the UK. The plan, offered at $9.99, is no longer available to new customers.
The decision to cut the skeleton plan appears aimed at pushing subscribers in that price tier toward the ad-supported model, which is priced at $6.99. The company has previously said the ad-supported model performed better on the “economics” than the $9.99 ad-free model.
NFLX shares have had a great year so far with shares up 44%.
The 44% upswing is also after an 8% drop yesterday on this earnings report.
Clearly, traders used this opportunity to take profits.
NFLX’s performance is part of my wider thesis that earnings won’t be anything special, but good enough to deliver a better entry point into these stocks.
Buy the dip strategy will perpetuate for most brand-name tech companies.
It’s not exactly simple to get into a stock that has gone up 44% in 7 months because most of the time the stock needs to be chased.
Chasing tech stocks is an underlying theme of 2023 with fear of missing out (FOMO) engulfing most fund manager’s plans of attack.
So yes, I do believe many investors will use these tepid earnings reports to take profits and these dips are incredibly healthy for the tech sector.
Thus, traders should reload because tech stocks like NFLX will be on discount before the next leg higher.
