When Netflix (NFLX) sailed past $600 at the end of 2021, FAANGM investors thought the streaming giant would keep climbing. Instead, Netflix posted quarterly results that included a forecast of slowing subscriptions. The stock fell by 21.79% on Jan. 21.
This is potentially a short-lived over-reaction.
Nasdaq’s decline to lows not seen since Oct. 2021 is adding to the heightening fears. Netflix posted 8.5 million new subscription additions in the quarter. Its forecast for 2.86 million new subscribers is lighter than the market expected. Furthermore, the company posted negative cash flow.
The two weak data points justify the stock’s drop but the longer-term prospects are strong. Despite heavier competition from AT&T’s HBO Max, Disney’s Disney+, ViacomCBS, and Comcast’s streaming, Netflix is investing in the business. It will acquire quality content and the occasional blockbuster. The monthly fee increase for new subscribers will discourage customers from leaving the service.
NFLX stock is still above its 52-week low, so it could encourage weak hands to sell. Once the selling pressure ends, investors will realize that Netflix has the best content, branding, and traction in the streaming market. The stock trades at a modest 27 times forward price-to-earnings. Its debt/equity of 1.0 times is manageable, even in a higher interest rate environment.
Watch NFLX stock from here.
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