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.

Why is the Netflix share price falling?

It all seems to be down to the growth in subscribers so far in 2021. Although revenue of $7.16bn beat expectations, the market was expecting around 6.25 million new accounts to have been opened between January and March. The figure released last night fell far short of that at 3.98 million. 

To make matters worse, Netflix expects only 1 million new account openings for the next quarter of its financial year. Again, this does not compare well to the near-5 million predicted by analysts. 

In its defence, Netflix said that the recent slowdown was likely due to the lack of new shows on the service. This seems fair. The pandemic succeeded in halting production for many companies and movie studios in 2020 (including FTSE 250 broadcaster ITV).

Will the rout continue?

It’s hard to say if this will continue. There are certainly reasons for thinking this fall in the Netflix share price could prove temporary. The company remains the clear market leader. Almost 208 million people already hold accounts. Moreover, the release of new seasons of popular shows later this year could lead to a better set of numbers. 

One must also put things in context. Multiple coronavirus-related lockdowns have been a boon to the company. Almost 16 million new subscribers signed up for the service in Q1 2020, a large proportion of them in Asia. As a consequence, the Netflix share price is up 65% since the crash. Seen in this light, some slowing of momentum (and profit-taking) was inevitable.

Then again, there are reasons to be bearish. The successful rollout of vaccines and gradual return to normality means people will be less inclined to stay in over the rest of 2021. Even if they do, Netflix continues to face strong competition from the likes of Disney+ and Amazon Prime. There’s also something to be said for being wary of stock market valuations right now, particularly in the US. 

Foolish options

Whether the fall in the Netflix share price represents an opportunity or not depends on an individual’s time horizon and risk tolerance, in my view. In the near term, there’s no way of knowing whether things will get worse. Over a longer time frame, the odds of making money should improve.

That said, I won’t be buying the shares today. Instead, I’d be more likely to buy a fund that owns a slice of Netflix in addition to other stocks. The Polar Capital Technology Trust or Baillie Gifford American are examples. There’s no guarantee that the value of these funds won’t fall as well. However, the fact that my cash is invested in multiple companies rather than just one means I should be able to sleep more soundly.

Netflix has been one of the best investments in recent times. I don’t doubt it still has the potential to make money for those buying now. With a market cap close to $250bn, however, expectations of future returns must be tempered. The time for me to throw everything at the stock was 10 years ago.  

The post The Netflix share price is falling. Should I buy? appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares of ITV. The Motley Fool UK owns shares of and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool UK has recommended ITV and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on 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.

What caused the ITV share price to rise? And should I be considering the business for my own portfolio? Let’s take a look.

Why is the ITV share price rising?

ITV is the UK’s second-largest TV broadcasting company. It generates money by selling advertising space during live TV commercial breaks or on its digital streaming platform called ITV Hub. With Covid-19 lockdowns forcing most people to stay at home, the demand for TV and streaming services has increased significantly. But it has also caused some problems.

The firm had to temporarily pause the production of 230 projects. And with no new content being released, the business took a significant hit.

In early November, ITV released its Q3 earnings report, which showed just how significant that impact was — specifically, total revenue fell by 16% compared to a year ago. But despite the reduction in income, some promising trends emerged and are likely to be the driving force behind the ITV share price recovery.

Total viewing hours increased by 2% to 12.2bn, along with an additional 2 million accounts registered on ITV Hub. What’s more, 85% of the projects that were put on pause are now back in production.

Overall it seems that investors were impressed with ITV’s ability to get back on track, and so the share price has begun to rise. Looking at the full-year results for 2020, I can see why. While the company still reported a double-digit decline in full-year earnings, profits remained firmly ahead of analyst expectations.

There are some risks to consider

Running a TV broadcasting/streaming service is not an easy challenge. Viewing habits of consumers can change like the wind. Production teams need to be able to anticipate and quickly respond to a shift in interests. After all, producing a new series or film is an expensive process that doesn’t always pay off. Suppose ITV invests large sums of money into bad projects? In that case, viewership will fall along with the value of ITV in the eyes of advertisers.

Another rising threat is competition from other streaming services, such as Netflix and Disney+. These platforms offer a vast collection of original and exclusive content that gobble up users’ spare viewing time. While I find it encouraging that ITV Hub grew its registered users to 33m last year, both Netflix and Disney+ have more than double that.

The bottom line

The competing streaming services are a significant threat to ITV and its share price. At least, I think so. However, I find it encouraging that the ITV management team is shifting its strategy towards further developing ITV Hub.

Combining its existing registered accounts, strong relationships with advertisers, and track record of producing popular content makes me believe that ITV can adapt to and thrive in the new streaming environment. Therefore I would definitely consider adding the stock to my portfolio even after the recent increase in the ITV share price.

The post The ITV share price is recovering. Should I buy now? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in ITV. The Motley Fool UK has recommended ITV. 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.