Netflix’s Earnings Were Bad, But the Bull Case for NFLX Stock Remains

What Happened to the Netflix Stock Price Today?

The Netflix (NFLX) logo on a tablet with earbuds and a bowl of popcorn nearby.

Source: Riccosta / Shutterstock.com

  • Netflix (NASDAQ:NFLX) stock tanked more than 10% on Wednesday after the streaming giant reported disappointing first-quarter earnings which ostensibly showed that the company’s growth trajectory is materially slowing as the world normalizes and consumers go back outside.
  • As of this writing, NFLX stock trades at its lowest price tag since before the company’s last earnings report in January.

Why It Happened

  • Netflix is having trouble adding new subscribers.
  • The platform added just shy of 4 million new subs in the quarter, well short of the company’s forecast for 6 million paid net adds.
  • Worse yet, Netflix is guiding for just 1 million paid net adds in the second quarter of 2021. That marks the company’s lowest number of quarterly net adds in several years, and signals that Netflix’s user growth trajectory is slowing meaningfully in the first half of 2021.
  • Based on the current trend, Netflix is on track to add the fewest number of new users this year since 2014.
  • This reverses a long track record of Netflix increasing the number of paid net adds every single. In 2014, Netflix added 8.3 million new subs. In 2015, that number climbed to over 16 million. Over the next five years, it went to 18 million, then 22 million, then 28 million for two straight years, and a whopping 37 million last year.
  • That trend is now breaking. Investors are spooked. NFLX stock is tanking.

Does It Matter?

  • This slowdown would matter if Netflix was getting crushed by the competition.
  • But the data says it’s not.
  • There are two important data-points here.
  • First, Netflix’s retention actually improved in the quarter. First quarter 2021 churn rates were below first quarter 2020 churn rates. So, folks aren’t quitting Netflix for Disney+ or HBO Max. They may be adopting those new services, sure. But they’re sticking with Netflix.
  • Second, Netflix’s user growth trajectory was on track through the first-part of 1Q21, when the company had new hit releases like BridgertonLupin and Cobra Kai. Then, once the new release slate dried up, Netflix’s user growth trends plunged.
  • In other words, the data strongly suggests that Netflix is having trouble adding new subscribers because of a light content slate, as the company hit the pause button on production in 2020 which is resulting in fewer early 2021 releases. This makes sense. New content attracts new subs. As that pipeline of new content has slowed, the pace of new sub adds has slowed.
  • This is a fixable problem.
  • Netflix is already re-upping content production as Covid-19 restrictions ease. The second half of 2021 will have a huge content slate that includes new seasons of Sex EducationThe WitcherLa Casa de Papel, and You, as well as new films like Red Notice (starring The Rock, Ryan Reynolds, and Gal Gadot) and Don’t Look Up (starring Leonardo DiCaprio, Jennifer Lawrence, Cate Blanchett, and Meryl Streep).
  • Basically, while Netflix’s 1H21 content slate is weak and will result in weak sub growth, the company’s 2H21 content slate is about as good as I’ve ever seen, and should result in near-record user growth.
  • Ultimately, then, Netflix’s net net 2021 user growth number will be in-line with historical numbers, in the 20-plus million range.

NFLX Stock Price Forecast

  • NFLX stock is tanking because of fears that weak user growth will persist.
  • It won’t. It will dissipate by 2H21, when the content slate recharges.
  • When it does, Netflix stock will rebound in a big way, since shares are meaningfully undervalued at current levels of below $500.
  • Wall Street analysts and our team largely agree that NFLX stock is worth more than $600 today. We believe that, while near-term weakness may last, Netflix stock will ultimately end 2021 above $600.

Netflix stock is a great growth stock to buy and hold for the long haul. But the reality is that most of the money in this name has already been made. Everyone already has a Netflix account. Every investor is already long NFLX. The company already has a market cap of $240 billion.

So, while NFLX stock is a great long-term buy, it’s far from the best stock to buy if you’re looking to score 5X, 10X, or even 20X gains in the stock market.

If you’re looking for those kinds of gains, you have to look where no one else is looking — at small, emerging stocks with breakthrough technologies that could change the world, but which no one knows about or is talking about today.

Buying those small tech stocks today could be like buying NFLX stock a decade ago… before it soared thousands of percent.

Identifying these breakout small tech stocks before anyone else — and scoring 10X or bigger gains — is my specialty. That’s my niche in the market. Finding small tech stocks with huge breakout potential first is how I picked names like Advanced Micro Devices (NASDAQ:AMD), Chegg (NASDAQ:CHGG), Tesla (NASDAQ:TSLA), NIO (NYSE:NIO), Plug Power (NASDAQ:PLUG), Shopify (NYSE:SHOP), Square (NYSE:SQ), and many more before most other folks even knew they existed — and scored bigger than 10X gains in all those names.

But these days, my focus is on a whole new set of emerging tech companies that have enormous long-term upside potential. The next AMDs, Netflixs, and Teslas, if you will.

To find out about this new class of potential 10X winners, click here.

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

By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2021/04/netflixs-earnings-were-bad-but-the-bull-case-for-nflx-stock-remains/.

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