Netflix Tanks – Buy the Dips?

Nigel Frith

Netflix logo in front of Stock Bar Chart

The headline event of Tuesday was the release of Netflix Q1 earnings that turned into something of a horror show. The worry is that the home streaming service could be a pandemic-only play, and on the back of stalling subscription numbers, the Netflix share price plummeted by as much as 14% intraday.

Some of the price drops are Netflix specific but some reflect a broader sell off in equities on Tuesday.

  • S&P – Down 0.7%
  • DJIA – Down 0.8%
  • Nasdaq Composite – Down 0.9%
  • Russell 2000 – Down 2%

Is This the Time to Buy Netflix and Other Growth Stocks?

Netflix Inc Stock Price Showing Large Dip

Source: IG

Dip-buyers can point out that from a technical perspective, Netflix has not broken its long-term support line at $460. Tuesday’s price fall started from an elevated price level – the stock had indeed been throwing off signals there may be a break out to the upside.

  • 2020 Q4 – added 8m new subscribers
  • 2021 Q1 – added 4m new subscribers, 2m fewer than its original estimate of 6m
  • 2021 Q2 – Netflix forecasts only 1m new subscribers

 

From a fundamental perspective, the firm’s earnings announcement was accompanied by a message from management that current subscription levels may represent car-crash TV. However, they expect subscriptions to pick up in H2 of the year.

Netflix Fundamentals 1 – Production Problems

They state that while Covid increased the size of their target audience, it also restricted their ability to make the trademark high-quality content it uses to attract new customers. That situation has already begun to be rectified.

Netflix Fundamentals 2 – A More Robust Balance Sheet

All firms suffer peaks and troughs but this pull-back in growth is not the existential crisis it could have been at an earlier stage of Netflix’s life cycle. It’s not the loss-making moon-shot company it was until 2019.

Netflix is a bona fide business which in Q2 generated $7.2bn of revenue – beating the $7.1bn forecast. It’s also developing the key metric of APRU (Average Revenue Per User) that was up in Q1. All in, the balance sheet appears strong enough to weather the storm. Year on year revenue is up by 24%.

Netflix Inc infographics showing income, equity and Cash from Operations all up

Source: IG

Netflix Fundamentals 3 – Mature Management

The forecast of only one million new subscribers in Q2 suggests the management are willing to use their relative financial health to draw out all the bad news in one hit. It’s a conservative number and one which could well be soundly beaten by the time the next earnings figures are released.

Netflix – Is the Story Believable?

Netflix now has more than 200m subscribers across the globe. A staggering 36m of those were added in 2020. The management claims last year’s Covid rush cannibalised new users they would expect to sign up in 2021.

It’s not the strongest argument – to suggest customers onboard in a conveyor belt fashion. Pointing to the production problems which appear to be over and the otherwise solid financial fundamentals, it would appear to have been more likely to find favour with investors.

 

If you want to know more about this topic, or have been scammed by a fraudulent broker, please contact us at [email protected]


Nigel Frith

Latest news

Forex vs Crypto: What’s Better For Beginner Traders?
The crypto and forex markets are two of the world’s most popular among investors and traders. Read more
Three Great Technical Analysis Tools for Forex Trading
You don’t have to be very technical minded to make use of technical analysis in your forex trading. Read more

Safest Forex Brokers 2024

Broker Info Best In Customer Satisfaction Score
#1 73% of retail CFD accounts lose money. Founded: 2014 Global Forex & CFD Broker
Number One Broker
Best Trading Conditions Visit broker
4.9
#2 Blackbull LogoYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
4.8
#3 AvaTrade LogoYour capital is at risk Founded: 2006 Globally regulated broker
Number One Broker
BEST CUSTOMER SUPPORT Visit broker
4.9
#4 plus500 logo81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Founded: 2008 Global CFD Provider
Number One Broker
Best Trading App Visit broker
5
#5 Between 74-89 % of retail investor accounts lose money when trading CFDs Founded: 2010 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
4.9
#6 Forex Broker eToro Logo76% of CFD traders lose money Founded: 2007 Global CFD & FX Broker
Number One Broker
ALL-INCLUSIVE TRADING PLATFORM Visit broker
4.9
#7 XM LogoYour capital is at risk Founded: 2009, 2015 and 2017 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
5
#8 FxPro LogoYour capital is at risk Founded: 2006 CFD and Cryptocurrency Broker
Number One Broker
CFD and Cryptocurrency Visit broker

    Forex Fraud Certified Brokers

    AvaTrade logo
    BlackBull Logo Small
    plus500 logo
    eToro Logo
    XM Logo
    FXTM Logo
    FxPro logo
    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.