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Worries that Netflix ’s crackdown on password sharing would be damaging proved to be unfounded. Ditto with worries about the new ad-supported tier.
Netflix blew expectations for subscriber growth out of the water. The company missed Wall Street’s hopes for revenue and had slightly weaker guidance than hoped for the third quarter. But the 7.3% drop in shares in the premarket Thursday, to $442.61, seems way out of proportion if that were the reason people are selling.
There may be some knee-jerk pushback after the shares more than doubled over the past year. Some investors may have decided to buy leading up to the earnings to sell on the news.
Benchmark analyst Matthew Harrigan identified the real problem before earnings were released. He has a Sell rating on the shares, though he did raise his price target to $293 from $250 on July 18.
With many competitors in streaming now, Netflix is only as good as its content. The strike by Hollywood writers and actors is therefore a big problem for the company, even if, as it turns out, it actually increases profits in the short term. Competitors also offer live sports and news, which Netflix doesn’t—at least not yet.
“Even with Netflix’s advantages as far as new content inventory and more significant overseas production not subject to the U.S. labor shutdown, it is conceivable 2024 growth could be dampened by prolonged strikes,” Harrigan wrote. “The level of mutual acrimony in the entertainment trade media is worsening.”
That’s the rub for Netflix. Without new and unique programming, it doesn’t look that special.
Write to Brian Swint at [email protected]
