Is it finally time to buy Netflix stock?

Paul Summers — Thu, 27 Jan 2022 09:33:52 +0000

Netflix (NASDAQ: NFLX) stock has crashed 40% in 2022, so far. Today, I’m asking whether this is a golden opportunity for me to finally begin building a position in the dominant streaming service.

What’s gone wrong?

Before going on, it’s worth recapping why investor sentiment has reversed so dramatically. Much of this year’s sell-off is the result of concerns over Netflix’s slowing subscriber growth. A few days ago, the company revealed it was targeting just 2.5 million new accounts in the current quarter. That’s 4.4 million less than analysts were expecting.

But is this just a blip? I can think of a few reasons why now might be a great time to load up.

Reasons to buy Netflix stock

First, this is a business that has shown it can produce quality content. Series like Squid Game, The Crown and Bridgerton have been warmly received by critics and viewers. The company’s rapidly growing film catalogue is also doing well. Last week’s share price capitulation was as if investors believed the US giant was suddenly incapable of maintaining this form.

I also think a Netflix subscription has become so ingrained in many people’s lives (and that TV consumption has changed so much in recent years) that a lot of us wouldn’t even consider cancelling, even in inflationary times. The value for money compared to even a single cinema trip is truly astounding.

It’s also worth noting that Netflix is not alone in seeing a drop in subscriber growth. Back in November 2021, shares in Disney tumbled as it also reported that fewer people than before were signing up to its own streaming service. Isn’t all this inevitable as the pandemic enters its end-game and lockdowns become distant memories?

Worse to come?

For balance, let’s look at some arguments against buying now. It’s important to not get anchored to a price. Netflix stock doesn’t have a right to get back to its $700 record high, as much as holders might want it to. It could easily fall further as investors rotate into value stocks held back by Covid-19. And they might be right to do so. These may offer potentially better returns, at least in the short term.

Another argument is one that can apply to any company in the entertainment business, namely the popularity of whatever it produces is never guaranteed. Simply put, Netflix can throw money at a project and have no idea whether it will make a decent return on its investment. I’d need to be comfortable with this if I invested here.

Last, there’s the competition. While Netflix is the clear market leader, Amazon, Apple and the aforementioned Disney aren’t about to throw in the towel. As such, I certainly don’t think there’s anything wrong with taking a risk-off approach and buying a tech-focused fund that holds some or all four stocks.

Expectations lowered

On balance however, I’m very tempted to snap up some Netflix stock for my own portfolio. Now that previously-lofty expectations have been thoroughly reset, the company may even now surprise on the upside in its next update.

Even if this doesn’t happen, the long-term outlook — which now includes an expansion into video gaming — still looks stellar to me. And for someone with a totally different time horizon to your average fund manager, that counts for a lot.

The post Is it finally time to buy Netflix stock? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The US stock market crash is here! What am I doing?

Stuart Blair — Tue, 25 Jan 2022 07:09:23 +0000

Over the past year-and-a-half, analysts have consistently stated that US tech stocks have been in a bubble. But instead of bursting, the prices of these stocks continued to rise. Some notable examples include Tesla, which reached a $1trn valuation, and Apple, which soared to a $3trn market cap. But recently, this bubble has finally burst. Indeed, the Nasdaq index has fallen 17% from its recent highs, and the S&P 500 has fallen around 10%, reaching correction territory. While this is not as severe as the stock market crash in 2020, they’re still very large falls. Yesterday was a particularly bad day for stocks, due to a mixture of geopolitical tensions and more worries about inflation. But a stock market crash can often be a great time to buy stocks. So, what am I doing with some of the big fallers?

Growth stocks crash

The majority of large fallers have been growth stocks. This is due to worries over inflation, which means that the Fed will introduce several interest rate hikes throughout 2022. The Bank of England has already raised interest rates. This will make it more expensive to borrow, which is particularly detrimental for growth stocks. However, I believe that the stock market crash has left some companies far too cheap, as this issue now seems to be priced in.

One example is SoFi Technologies (NASDAQ: SOFI). SoFi is a fintech that went public via a special purpose acquisition company (SPAC) last year. But despite the share price falling over 50% from its highs of $26, the company’s performance continues to impress me. For instance, in its Q3 trading update, it announced that it had around 3m members, which is a 96% year-on-year rise. Recently, it also received a bank charter, which will allow it to directly lend money to customers. I feel this will entice more customers to use SoFi, while also boosting profitability. Therefore, despite the issues that inflation will cause for the fintech, I think it is a great example of a broken stock but an excellent company. I’m using this mini stock market crash as an opportunity to buy.

The stock market crash doesn’t mean buy everything

Although the stock market crash has led to several bargains, I also believe that some stocks have been rightfully discounted. This means that it’s important to be discerning when picking stocks, especially during such volatility.

For example, Netflix (NASDAQ: NFLX) stock has fallen around 30% over the past couple of days. This has left the stock trading at a price-to-earnings ratio of around 33 which, in comparison to many other growth stocks, does seem relatively cheap. As the shares are now at cheaper valuations than historically, this may allow the shares to recover, especially as some profit growth is still expected for the next financial year.

But I’m slightly worried about its future prospects. Indeed, in its recent Q4 update, there were major signs of slowing subscriber growth. Further, in Q1 next year, Netflix only expects around 2.5m net subscribers, well short of the 4m recruited in the same period last year. This slowing growth is due to the competition in the market, as well as the end of lockdowns around the world. As such, this slowing growth makes Netflix’s valuation hard to justify, and even despite the recent crash, it’s a stock I’m leaving on the sidelines.

The post The US stock market crash is here! What am I doing? appeared first on The Twelfth Magpie.