Netflix Comeback Didn’t Happen

By Douglas A. McIntyre Published May 12, 9:42AM EDT

Quick Read

Pulling Out Of Warner Deal Helped
Pays Too Much For Original Programs
Massive Advantage In Size
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Netflix Comeback Didn’t Happen — © Ben Kriemann / Getty Images Entertainment via Getty Images

Once Netflix (NASDAQ: NFLX | NFLX Price Prediction) dropped out of the race for Warner Bros. Discovery, it was supposed to bounce back. Most investors in the company could not see why Netflix would go after what were primarily media assets. And the price tag was staggering. Indeed, its stock price was $77 before Netflix walked away. It jumped to $95 in a matter of days.

Earnings took Netflix stock even higher. They drove the stock to $107. No wonder. Netflix reported revenue growth of 16% to $12.3 billion. EPS hit $1.28, up from $.66 in the year-ago period. Guidance for the year was steady.

However, Netflix stock is down 8% year to date. The S&P 500 is up 8%.

The reason for the share sell-off falls into two categories. Netflix revenue growth is unspectacular. Another is that the recovery of Netflix stock in March and April was too fast to justify the jump. Obviously, the two are related. Erste Group dropped Netflix from “buy” to “hold” in late April. They believe the rebound needs to be supported by more financial performance figures.

The sell-off isn’t supported by some fundamentals. Netflix is still well ahead of its primary competitors. It has 325 million subscribers worldwide. Amazon (NASDAQ: AMZN) is next at 200 million. Streaming services owned by legacy businesses are well behind. Disney+ sits at 131 million.

The fact that the competition is so far behind often means that their only chance to catch the leader is via price. If so, traditional media services might be able to lower subscription prices to gain market share. Whether this works long term, it presents a challenge to Netflix’s growth.

Another wildcard is what Netflix will pay for original programming. The argument has been made that it does not need movies and TV services that are new. Does Netflix need to pay for “Stranger Things”, “Bridgerton”, and “Wednesday”? The immediate answer is that it is hard to tell. What is not hard to tell is that it is into the billions of dollars.

If Netflix stock is down, it is because of potential competition and the cost of programming. Neither of them can be pinned down completely.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.