Fears that Netflix’s crackdown on password sharing could be harmful proved unfounded. Ditto for the worries about the new ad-supported tier.
Netflix has exceeded expectations for subscriber growth. The company missed Wall Street’s revenue expectations and had a slightly weaker-than-hoped guidance for the third quarter. But shares’ 5.6% drop to $450.66 in Thursday’s premarket session seems grossly disproportionate if that’s what’s driving the selling.
After stocks more than doubled in the past year, there could be a knee-jerk pullback. Some investors may have decided to buy ahead of the gains, only to sell on the news.
Benchmark analyst Matthew Harrigan spotted the real problem before the results were released. He has a sell rating on the stock, despite raising his price target to $293 from $250 on July 18.
Since there are now many competitors in the streaming space, Netflix is only as good as its content. The Hollywood writers’ and actors’ strike is therefore a major problem for the company, even if it turns out to actually increase profits in the short term. Competitors also offer live sports and news, which Netflix doesn’t offer — at least not yet.
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“Even if Netflix’s benefits in terms of inventory of new content and greater overseas production are unaffected by the US workforce closure, it’s conceivable that continued strikes will dampen growth in 2024,” Harrigan wrote. “The level of mutual resentment in the entertainment media is increasing.”
That’s the problem with Netflix. It doesn’t look as special without new and unique programming.
Of course, other analysts disagree. Pivotal Research Group’s Jeffrey Wlodarczak raised his price target on the stock to $600 from $535 following Wednesday’s results.
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“Netflix remains a very affordable, arguably undervalued, entertainment product, and management has consistently demonstrated its ability to successfully conquer the award,” he wrote in a note Thursday. “We recommend investors take advantage of the pullback and add to their positions.”
Write to Brian Swint at [email protected]