Netflix
Of course, Netflix's downdraft is also consistent with what we are seeing in many tech and growth stocks. Essentially, these stocks have been priced as if rates would remain permanently low. However, this is no longer the case which is leading to multiple compression and significant drawdowns in many names. To add concerns about slowing growth to the mix, means such a negative reaction in the stock is not entirely surprising. And this is especially the case given that Netflix has had such outsized returns over the past decade.
Inside the Numbers
In Q4, Netflix reported $1.33 in earnings per share which topped expectations of $0.82 per share. Revenue was in-line with expectations at $7.7 billion. Global paid net subscribers were slightly higher than expectations at 8.3 million vs 8.2 million. However, this was a decrease from last year's addition of 8.5 million subscribers in Q4.
However, the stock declined as its forecast for 2.5 million new subs in Q1 was well below expectations of 6.9 million new subscribers. One obvious reason is that Netflix's growth may be reaching exhaustion as it's already expanded into most international markets, and the bulk of the cord-cutting trend seems to be over. Another factor is the rise of competing, streaming services.
Q4 was expected to be a big quarter for new subs given that a huge slate of content was being released including new seasons of its most popular shows. Despite its short-term stumble, the company reiterated that it believes it can eventually reach between 800 to 900 million subscribers in the future. Currently, it has 222 million paid subscribers.
The company also announced modest prices increases last week between $1 and $2. Another potential area of growth is gaming where it's offering some limited titles in certain locations as a pilot program. Gaming could be another way to retain and attract new customers especially if it can successfully develop popular titles in the same way it has found success in developing new shows and movies.
