Today has been rather volatile for shares of Netflix (NASDAQ:NFLX), as well as the overall market. Initially opening higher this morning, reports of Netflix layoffs have sent NFLX stock into the red in this afternoon’s session.
The digital streaming giant reportedly cut 300 employees today, with most of these jobs taking place in the U.S. This move was in an attempt to bring Netflix’s costs in line with its revenue growth. Given the company’s rather disappointing subscriber numbers in 2022, many in the industry have expected such moves.
Indeed, in this market, profitability and cash flow are king. For Netflix, a company that has invested heavily in content in recent years, that has meant a significant amount of debt and equity financing. Investors concerned about the need for future financing have seemingly looked to other areas of the market for growth.
With these austerity measures taking hold across the broader tech sector, let’s dive into what investors should make of this news.
Do Netflix Layoffs Make NFLX Stock a Buy?
Given Netflix’s rather conflicted price action today, it appears the market hasn’t yet made sense of whether this news is positive or negative.
On the one hand, this move appears to be largely symbolic. With a workforce of approximately 11,000 individuals, Netflix’s layoffs of 300 employees aren’t likely to move the dial much.
On the other hand, this is the second round of such layoffs at the streaming giant. Accordingly, some may suggest this is only the beginning of what could be a daunting “trimming down” by Netflix as we head into uncertain economic waters.
Many companies grew headcount in anticipation of extremely high growth heading into 2022. Thus, my view is that, in general, these moves are likely to be a positive for tech companies right now. Investors want to see returns on capital, and a leaner workforce will push companies to be more creative with how they utilize resources.
Of course, slower growth will likely continue to be priced in. And unless Netflix can show some subscriber gains in the coming quarters, more layoffs may be on the horizon. On the whole, the picture for the market is rather grim right now. Investors need to ask whether these headwinds are largely priced in right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.