The Truth Behind Netflix's Stock Decline
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 3 days ago
0mins
Source: Fool
- Stock Price Dynamics: Despite Netflix's revenue and profit growth, along with an expanding advertising business, its stock has fallen by 30%, primarily due to a decrease in investor expectations for future growth, resulting in a drop in its P/E ratio from over 100 to 28.
- Shift in Market Expectations: Netflix was once favored for its exceptional growth story, but investors have begun to question whether it remains a hyper-growth company, a shift in thinking that has significantly impacted its stock price.
- Profitability and User Base: With over 300 million subscribers, Netflix's future hinges on how it can generate more revenue from its existing user base rather than solely relying on subscriber growth, with advertising revenue and margin expansion being critical factors.
- Investor Focus: The market's focus has shifted from subscriber growth to Netflix's ability to leverage its existing user base for long-term profitability; if the company succeeds in advertising and price increases, its stock price could recover.
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Analyst Views on NFLX
Wall Street analysts forecast NFLX stock price to rise
38 Analyst Rating
27 Buy
10 Hold
1 Sell
Moderate Buy
Current: 81.560
Low
92.00
Averages
114.18
High
150.00
Current: 81.560
Low
92.00
Averages
114.18
High
150.00
About NFLX
Netflix, Inc. is a provider of entertainment services. The Company acquires, licenses and produces content, including original programming. It provides paid memberships in over 190 countries offering television (TV) series, films and games across a variety of genres and languages. It allows members to play, pause and resume watching as much as they want, anytime, anywhere, and can change their plans at any time. The Company offers members the ability to receive streaming content through a host of Internet-connected devices, including TVs, digital video players, TV set-top boxes and mobile devices. It is engaged in scaling its streaming service, such as introducing games and advertising on its service, as well as offering live programming. It is developing technology and utilizing third-party cloud computing, technology and other services. The Company is also engaged in scaling its own studio operations to produce original content.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Subscriber Growth: By the end of last year, Netflix had surpassed 325 million subscribers, a substantial increase from 71 million in 2015, indicating its strong appeal and customer retention in the global market.
- Revenue Surge: During the same period, Netflix's revenue skyrocketed by 565%, which not only bolstered its robust earnings profile but also demonstrated the effectiveness of its significant investments in content and technology.
- Operating Profit: In the first quarter ending March 31, Netflix's operating income rose by 18.2% year-over-year, achieving an operating margin of 32.3%, showcasing its ongoing improvements in cost management and profitability.
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- Market Reaction: While Netflix shares closed up about 1% on Friday, they slipped 0.4% after hours, indicating a cautious market response to the governance changes and investor focus on future developments.
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- Investment Returns: A $10,000 investment in Netflix a decade ago would now be worth $83,500, reflecting a remarkable 735% return, significantly outperforming the S&P 500 index, highlighting Netflix's dominance in the video entertainment sector.
- Subscriber Growth: By the end of last year, Netflix had surpassed 325 million subscribers, a substantial increase from 71 million in 2015, indicating its strong appeal and customer retention in the global market.
- Revenue Surge: During the same period, Netflix's revenue skyrocketed by 565%, which not only bolstered its robust earnings profile but also demonstrated the effectiveness of its significant investments in content and technology.
- Operating Profit: In the first quarter ending March 31, Netflix's operating income rose by 18.2% year-over-year, achieving an operating margin of 32.3%, showcasing its ongoing improvements in cost management and profitability.
See More
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- Founder Departure: Reed Hastings, co-founder of Netflix, signaled his full departure in mid-April 2026, marking the end of his nearly 30-year leadership tenure and indicating a significant shift in the company's governance structure.
- Board Changes: Netflix's board appointed longtime independent director Jay Hoag as the new Chairman, effective immediately, replacing Hastings, which reflects ongoing adjustments and optimizations in the company's leadership.
- Market Reaction: While Netflix shares closed up about 1% on Friday, they slipped 0.4% after hours, indicating a cautious market response to the governance changes and investor focus on future developments.
- Analyst Ratings: According to Koyfin, 37 out of 50 analysts covering Netflix rate it as 'Buy' or higher, with a 12-month average price target of $114.56, suggesting a potential upside of about 39% from the last close, reflecting optimistic market expectations for Netflix's future performance.
See More
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- New Product Launch: Nvidia is launching its Vera CPU to tap into the Central Processing Unit market, which is estimated to be worth $200 billion; while it doesn't need to dominate this space like it does with GPUs, progress here could significantly enhance the company's performance in the coming years.
- Netflix's Market Challenges and Opportunities: Despite a 10% drop in stock price due to poor guidance following its Q1 earnings, Netflix's core advantages and extensive data ecosystem still make it attractive in the streaming market, with analysts projecting continued expansion in this sector over the medium term.
- Potential Returns for Investors: At current price levels, investors can purchase two shares of Nvidia or six shares of Netflix for $500, and given the long-term growth potential of both companies, especially amid market volatility, buying on dips could yield substantial returns for patient investors.
See More
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- Nvidia's Market Dominance: Nvidia has shown exceptional performance over the past five years, becoming the largest company by market cap due to its dominance in the GPU market; however, despite beating expectations in its latest financial results, its stock price has dropped, indicating market concerns about future growth.
- AI Infrastructure Demand: Spending on AI infrastructure is projected to reach between $3 trillion and $4 trillion by the end of the decade, positioning Nvidia well to capitalize on this rapidly growing market with its best-in-class GPUs and CUDA ecosystem.
- Netflix's Market Challenges: Although Netflix's stock has declined by 10% this year, its core advantages and extensive data ecosystem still provide long-term investment value, especially as it seeks to enter new niches like long-form video podcasts and sports streaming.
- Investment Return Potential: Investors can purchase shares of Nvidia and Netflix at current prices, with Nvidia trading at a forward P/E of 25.6, close to the industry average, while Netflix still has opportunities to deliver substantial returns in a competitive market.
See More
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- Market Sentiment Weakens: The rejection of a ceasefire proposal by Hezbollah has heightened uncertainty in the Middle East, leading to a decline in market sentiment, with S&P 500 futures down 0.62% and Nasdaq 100 futures down 1.28%.
- Semiconductor Sector Weakness: Broadcom Inc. (AVGO) reported disappointing earnings, causing its stock to plummet over 12%, raising concerns that the semiconductor sector's strong rally may be losing momentum, as reflected by a more than 2% drop in the iShares Semiconductor ETF (SOXX).
- Strength in Non-Tech Stocks: Despite the sell-off in tech stocks, UnitedHealth Group (UNH) saw its shares rise over 5%, indicating a shift in investor focus towards non-tech sectors, which suggests a reevaluation of market dynamics across different sectors.
- Economic Data Focus: Investors are closely watching the upcoming May nonfarm payrolls report, which is expected to provide critical insights into job growth, unemployment rates, and wage trends, potentially influencing future market directions.
See More
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- AbbVie's Drug Approval: AbbVie's ovarian cancer therapy Elahere has been approved by the UK's National Health Service, which is anticipated to boost the company's market share in cancer treatment and further solidify its position in the biopharmaceutical industry.
- Manchester United Stock Surge: Manchester United's stock rose 6.11% following reports that the Glazer family may sell their stake, potentially providing financial support for the club's restructuring, especially as it faces high costs for redeveloping Old Trafford stadium.
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See More
