For a while, it looked like nothing could stop streaming platform Netflix (NFLX). Now, however, things aren’t looking good, and Netflix lost 26.8% in premarket trading on Wednesday. Those losses continued into the Wednesday morning session.
I remain bullish on Netflix.
Netflix spent much of its year on top of the world. Breaking $500 per share was a regular occurrence until January 2022, when the company crashed to around $350 per share. Recovery followed, but proved unsustainable as a series of losses followed that brings us to the present day.
The latest news proved to be only the latest setback to the streaming platform. The company, for the first time in around 10 years, lost subscribers. It lost around 200,000 subscribers total, despite internal projections that called for a gain of 2.5 million subscribers.
Analysts, meanwhile, were looking for 2.7 million subscribers. This time last year, Netflix added 3.98 million subscribers.
Wall Street’s Take
Turning to Wall Street, Netflix has a Hold consensus rating. That’s based on 10 Buys, 25 Holds, and three Sells assigned in the past three months. The average Netflix price target of $345.33 implies 52.5% upside potential.
Analyst price targets range from a low of $235 per share to a high of $570 per share.
Investor Confidence Remains High
Every major indicator of investor confidence says to carry on as if the company didn’t just suffer its first loss in a decade.
Hedge funds, based on the word from the TipRanks 13-F Tracker, noted an increase in hedge fund positions. Hedge funds had been declining, if slightly, since December 2020. The time between September 2021 and December 2021, however, saw the first increase in close to a year.
Meanwhile, insider trading at Netflix was brisk. Netflix insiders bought $20 million in shares in the last three months. However, Netflix insiders spent a large part of 2021 selling, and at a brisk pace.
Retail investors, meanwhile, have been adding to their Netflix positions steadily. Portfolios holding Netflix increased 5.1% in the last 30 days, and 0.9% in the last seven days.
Comeback in the Making?
Netflix knows it’s facing increasing competition. Look at all the streaming platforms that have joined the market. Long-time players like Hulu are still around. Roku (ROKU) is making an ever-growing play. When Disney (DIS) enters the market, you know you’re in for a scrap.
Netflix is exploring the addition of an ad-supported tier. Sadly, this will not make Netflix free, but will rather require users to spend less money for the privilege of accessing Netflix content along with regular ad breaks.
Further, Netflix also plans to “crackdown” on password sharing. Netflix notes that over 100 million households worldwide are using shared passwords, and about a third of those are in the U.S. and Canada.
Previously, Netflix turned a blind eye as it was growing even without the shared passwords. However, with subscribers on the decline, Netflix plans to more zealously pursue that lost revenue.
To which I say, good luck with that. Netflix actually allows for a certain amount of password sharing. Based on Netflix’s own data, the Standard plan — which costs $15.49 per month — allows up to two screens to watch Netflix at once.
Upgrade to the $19.99 package and that goes to four screens. Netflix’s own terms of service allow for password sharing. The “crackdown” promised pretty much can’t exist without a significant overhaul to the terms of service as presented.
Pursuing such a crackdown too briskly, meanwhile, will likely result in further subscriber losses to services less prickly about password sharing.
A point that has me concerned, however, is the announcement that Netflix is dialing back on content acquisition. With studios opening up their own streaming platforms, Netflix will be much less reliant on catalog titles.
Original content will be Netflix’s only real path forward, and limiting that inherently limits Netflix’s capacity for success.
Concluding Views
Things are looking reasonably bright for Netflix right now. Its insiders are interested. Hedge funds are making a comeback. The average retail investor is willing to buy in.
The company is trading below even its lowest price targets. The lack of a dividend may be a point of concern for income investors, but there’s still growth room here. The last year demonstrates what the company might have done.
Granted, looking for Netflix to clear $500 per share again might be looking for a bit too much. Recovery into the $300 to $400 range, though, may be more likely. Netflix is acknowledging that it is no longer a rara avis, and is now rather the first among equals in the main method customers seek out entertainment.
Huge numbers of viewers make for a great potential ahead, and Netflix is still the best way to access that massive pool of viewers. That’s why I’m bullish on Netflix, who now knows the extent of the fight it’s truly in.
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