Shares of video-streaming powerhouse Netflix (NFLX) were on the receiving end of this latest tech sell-off. Thanks in part to broader sector weakness and a brutal quarterly report, NFLX stock sunk nearly 50% from peak to trough.
Following the vicious plunge, famed billionaire activist investor Bill Ackman announced that he had loaded up on shares. Indeed, investors flooded back into Netflix stock on news that Ackman had purchased around 3.1 million shares. The man has an eye for value, and recent market volatility has paved the way for deep-value bargains in the tech space.
Despite the severity of the plunge and the weak quarter, I do think Netflix is more of a Buy than a Sell. Still, I am in no rush to follow Ackman into the stock after its explosive bounce off the ~$360 range. It’s too early to know if tech stocks have bottomed out.
Should NFLX stock retest its 52-week lows, I’d be interested, but until then, I am neutral on the stock. Indeed, there was a lot to be concerned about with a stock that probably never should have flirted with the $700 per share range in the latter half of last year.
Netflix Posts a Brutal Quarter; Future Outlook Remains Uncertain
It’s not normal for FAANG stocks to implode by over 20% after earnings. Shockingly, Netflix wasn’t the only firm to implode following the release of its latest results. It was just one of two so far following the implosion of Meta Platforms (FB) stock following its quarterly flop.
Indeed, the turmoil in high-multiple and speculative tech has spread to the mega-caps. In terms of mega-caps, the FAANG names are king.
For the fourth quarter, Netflix missed the mark on subscriber growth. Alongside downbeat expectations for the coming first quarter and the rest of 2022, it’s not a mystery as to why NFLX stock sunk as low as it did despite being a member of the exclusive FAANG club.
A miss and guide downgrade have been a one-two punch for firms this earnings season. Netflix took the combination square on the chin. Undoubtedly, year-over-year comparables were tough, with the economy showing signs of normalization despite the recent Omicron surge. Still, co-CEO Reed Hastings acknowledged competition is starting to weigh more heavily on growth.
It was just a matter of time before rivals like Disney (DIS) had a chance to catch up in the video-streaming market. Now they’re breathing down the neck of Netflix, don’t expect Hastings to back down without a fight. The man has faced existential challenges in the past, and history suggests Netflix will make it through these tough times.
Reed Hastings Is Also Buying Netflix Stock
Reed Hastings reportedly joined Bill Ackman in buying on the latest dip, purchasing around $20 million worth of Netflix shares. The man believes his shares are undervalued and who knows the business better than the founder and co-CEO himself? Arguably, nobody.
There’s no question that video-streaming growth would slow down eventually. There are so many people willing to pay up to stream their favorite content. With more options and downward pressure on prices, Netflix’s price hike has come at a questionable time, in my opinion.
In any case, Netflix will need the extra cash to pull its next growth level in the video-gaming space. The company hopes to create the “absolute best” gaming service out there. While I do not doubt Hastings’ ambitions, it’s clear the firm has some catching up to do, given it’s a late entrant to the space.
With the acquisition of independent game developer Night School Studio and a recent partnership with RocketRide Games, Netflix will be adding to its currently shallow line-up of mobile game offerings. These are not massive moves, but they’re a start, and that’s something to be hopeful about as the firm moves beyond video-streaming.
Wall Street’s Take
Turning to Wall Street, NFLX stock comes in as a Moderate Buy. Out of 36 analyst ratings, there are 18 Buys, 15 Holds, and three Sell recommendations.
The average Netflix price target is $521.21, implying an upside of 14.0%. Analyst price targets range from a low of $342.00 per share to a high of $750.00 per share.
The Bottom Line on Netflix Stock
Netflix has already begun its move into the gaming world, but it still has an uphill road to climb if it’s to turn the gaming business into something special. Personally, I think Netflix is late to the party. As a result, it could be pressured into overpaying for a game studio.
Bill Ackman and Reed Hastings may be big buyers of NFLX stock. Still, after such a sharp bounce off the bottom, I’d be more inclined to wait for a better entry point, perhaps lower than the price both men recently paid. The gaming push is not without its risks. Getting into the business could get expensive.
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