The mix of market risk-aversion in general and widespread fears that stay-at home stocks might have peaked has taken a huge cost to Netflix (NASDAQ: NFLX) shares.
The Los Gatos, California-based entertainment giant has seen its market capitalization decline by 40% over the course of its year which makes it the second worst performer on the NASDAQ 100 Index. The stock hit the record highest of $700.99 on November. 17 the stock has dropped by 45 percent, and closed Tuesday at $386.7.
The decline in Netflix’s subscriber base accelerated after the company’s most recent earnings report this week, revealing that the growth in subscribers isn’t returning as fast as some analysts expected. As opposed to the four million that Netflix had prior to the year Netflix now anticipates to gain just 2.5 million customers in this quarter.
It also narrowly overestimated its number of subscribers in the 4th quarter by adding 8.3 millions subscribers rather than 8.5 millions.
We think that this significant adjustment is a fantastic starting point for investors in purchasing the top streaming entertainment stock at a lower cost.
A Remarkable Company
A weak post-earnings period isn’t new in the eyes of Netflix investors. According to Bloomberg information, the company’s shares have gained on the day after earning just twice in of the last 12 quarters, not including the most recent quarter.
However, Netflix has frequently recovered from the downturn due to its high-quality technology and content. Smart investors are already shifting their funds to profit from this major downside shift.
Pershing Square’s Bill Ackman purchased more than 3.1 million shares of Netflix this week, which makes him a top 20 shareholder. The Netflix CEO said the company’s massive price drop was affected by the recent market volatility in a tweet.
“I have for a long time admiration for Reed Hastings and the remarkable business the team he has constructed. We are thrilled to have the opportunity provided us with this chance .”
In a move that was not in line with the market the long-time bear Benchmark Co. upgraded Netflix after stating that the sale appeared too much.
What can make Netflix an excellent buy-on-the-dip option is the increasing number of content that is original. Netflix has spent around $17 billion on its original content in the last year, which is an increase of 40% from the year before.
In the present period, Netflix has a strong selection of movies and TV series, including the new season of The Witcher, You, Bridgerton One of the biggest hits on its list as well as The Adam Project The Adam Project, a highly anticipated time-travel themed film starring Ryan Reynolds and Jennifer Garner.
While spending massive amounts on new content, Netflix has expanded its margins from 7.2% in 2017 to 18.3% in 2020 and 21% in 2021.
Another good thing to be considered by investors looking long-term is the fact that Netflix does not rely on borrowing to fund its expansion. In the past, after years of using borrowing money to fund its production the company announced it is no longer required to seek out outside financing to fund its day-to-day operations.
Bottom Line
Netflix stock is now an attractive investment following its recent slump that is, to our opinion, is not enough. After consolidating its competitive and cash positions in the wake of the pandemic Netflix is now better placed to see growth again.
