How to Play the #CancelNetflix Dip

Netflix (NASDAQ:NFLX) stock is down 11.8% so far in the month of September.

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One of the driving forces behind the Netflix sell-off is the #CancelNetflix campaign. #CancelNetflix has been trending on social media since the release of the controversial movie Cuties. Recent Netflix churn data suggests Netflix investors should certainly take the campaign seriously.

But it’s likely nothing long-term investors should lose sleep over.

NFLX Stock Sell-Off

For investors who have been living under a rock in recent weeks, people are protesting the way Cuties portrays underage girls in a sexual light. Cuties was released internationally on Netflix on Sept. 9.

The subsequent #CancelNetflix campaign coincided with a sell-off in Netflix stock. Campaigners are calling for Netflix users to cancel their Netflix subscriptions to protest what they see as obscene content.

If the boycott is successful, Netflix will see a major spike in churn in the month of September. Early September churn data from YipitData suggests a large number of the protestors actually seem to be following through with their threats to #CancelNetflix. YipitData recently reported that Netflix’s churn jumped to eight times its pre-Cuties level in the first half of September.

But before NFLX stock investors get too concerned about the sell-off, it’s important to put the sell-off in context. Sure, an 11% sell-off is significant. But in addition to the #CancelNetflix campaign, the tech sector as a whole has been very weak in September. For example, Apple (NASDAQ:AAPL) shares are down 14.5% so far in September. And #CancelApple is certainly not trending on social media.

Why #CancelNetflix Doesn’t Matter

Let’s assume #CancelNetflix is dragging down NFLX stock. Let’s also assume that the YipitData numbers are correct and Netflix is experiencing a surge in churn. The big two questions for NFLX stock investors will be how long will it last and how much will it matter?

In my opinion, the answer to the first question is it will not last very long. People’s attention spans are shorter than ever. And the people that take up causes on social media all day seem to be particularly prone to chasing the latest trends. New social media controversies pop up on a weekly or even daily basis. Once the next cancel culture target is established, #CancelNetflix will no longer be on-trend.

To me, NFLX stock investors shouldn’t sweat the second question either. Even if a large number of subscribers cancel their subscription in September, it’s hard to believe they won’t resubscribe in the near future. What will these social media warriors do when #CancelNetflix is no longer trending but #StrangerThingsSeason4 is? They will go right back to Netflix.

How to Play It

There’s no question the third quarter will be a critical one for NFLX stock. Investors will likely see churn increase at least somewhat in the month of September. But fourth-quarter numbers may be even more important given they will tell the story of whether or not those subscribers return to the platform.

I’m guessing the situation will play out in a similar fashion to the Facebook (NASDAQ:FB) advertising boycott earlier this year. Like #CancelNetflix, the #StopHateForProfit campaign gained significant momentum and resulted in many high-profile advertisers temporarily shunning Facebook. The campaign got plenty of media attention and was trending on social media for weeks. Then, Facebook’s second-quarter earnings report came out. Facebook reported 11% revenue growth and an earnings beat, and the stock jumped to a new all-time high.

In the long-run, #CancelNetflix will be long forgotten and so will any temporary impact it has on Netflix’s numbers. If you were a long-term NFLX stock bull before Cuties, you should continue to be a Netflix bull. If you were looking for an entry point to buy NFLX stock, now is probably a good time.

Personally, I prefer Walt Disney (NYSE:DIS) over NFLX stock due to the company’s diversified business, pandemic rebound potential, healthy balance sheet and much earlier-stage Disney+ streaming platform.

On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/nflx-stock-how-to-play-the-cancelnetflix-dip/.

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