Netflix Comeback Didn't Happen

"Once Netflix ( NASDAQ: NFLX | NFLX Price Prediction) dropped out of the race for Warner Bros. Discovery, it was supposed to bounce back. Most investors in the company could not see why Netflix would go after what were primarily media assets. And the price tag was staggering. Indeed, its stock price was $77 before Netflix walked away. It jumped to $95 in a matter of days."

"Earnings took Netflix stock even higher. They drove the stock to $107. No wonder. Netflix reported revenue growth of 16% to $12.3 billion. EPS hit $1.28, up from $.66 in the year-ago period. Guidance for the year was steady. However, Netflix stock is down 8% year to date. The S&P 500 is up 8%."

"The reason for the share sell-off falls into two categories. Netflix revenue growth is unspectacular. Another is that the recovery of Netflix stock in March and April was too fast to justify the jump. Obviously, the two are related. Erste Group dropped Netflix from "buy" to "hold" in late April. They believe the rebound needs to be supported by more financial performance figures."

"Netflix is still well ahead of its primary competitors. It has 325 million subscribers worldwide. Amazon ( NASDAQ: AMZN) is next at 200 million. Streaming services owned by legacy businesses are well behind. Disney+ sits at 131 million. The fact that the competition is so far behind often means that their only chance to catch the leader is via price. If so, traditional media services might be able to lower subscription prices to gain market share."

Netflix stock surged after Warner Bros. Discovery dropped out, rising from about $77 to $95 quickly, then to $107 after earnings. Revenue grew 16% to $12.3 billion, and EPS increased to $1.28 from $0.66 a year earlier, with steady guidance. Despite these results, the stock is down 8% year to date while the S&P 500 is up 8%. The decline is attributed to unspectacular revenue growth and a rebound in March and April that was too fast to justify the jump. Netflix still leads streaming competitors with 325 million subscribers versus Amazon’s 200 million and Disney+’s 131 million. Competition could pressure Netflix through price cuts, and uncertainty remains around how much Netflix must pay for original programming.

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