ega-cap enterprises are exhibiting post-earnings price action with a market-moving magnitude the world has never seen before. Panic appears to be the market’s go-to response this earnings season, and not just panic to the downside, but FOMO panic to the upside as well (e.g., Alphabet GOOGL & AMD AMD ).
The most devastating fear-fueled post-earnings price action came from the streaming king that looks to be losing its place on the throne and the global social media monopolist that’s making a monumental business pivot into a virtual world.
Netflix NFLX and Meta Platforms FB , formerly Facebook, both lost over 20% of their incomprehensibly large valuations (wiping $100s of billions out of the market in the blink of an eye) following disappointing year-ending results coupled with cautious forward guidance as the pandemic’s digital tailwind slows.
Market sentiment is fragile. Inflation, monetary uncertainty, and whispers of peak growth have investors running for the hills at the first sign of trouble.
A tidal wave of freshman traders & investors flooded into the market in the past 2-years, fueling more active market participation than ever before. This new cohort of market participants has yet to experience anything but the euphoric bull run since the COVID selloff that bottomed in March of 2020. Recent volatility is trigging high-volume panic selling from these green market participants.
This market is ripe with fear, which means investment opportunities are popping up across the ticker board. As the investing guru, Warren Buffett once wisely advised: be greedy when others are fearful, and you better believe that professional money managers are doing just that.
Netflix’s Search For Growth
Netflix was the first of big tech to report its Q4 results, and investors’ incredible disappointment may have just pulled the “big” out of its classification. Despite a top and bottom-line beat for this market-disrupting streaming pioneer, NFLX capitulated roughly 22% in its worst one-day decline in a decade.
This instant valuation had money managers like Bill Ackman (who made billions from calling the COVID selloff) buying up millions of shares ($1.1 billion in value) on this knee-jerk selloff. Netflix’s own CEO, Reed Hastings, even bought $20 million of his own company’s stock to show the market his continued confidence in the business.
NFLX’s forward P/E multiple dropped temporarily into the 20x-range, which is undoubtedly an attractive valuation for this market disruptor. Still, I worry about the future of this streaming business as its subscriber growth rapidly decelerates and well-positioned media giants saturate this space.
Netflix is looking at peak growth in the rearview mirror with that nostalgic longing that makes you do things you might regret, like spending billions to enter the already oversaturated gaming space in an attempt to reinvigorate its one surging growth outlook.
Growth Outlook
Netflix’s domestic subscription growth appears to be topping out, with 75 million being the magic number for North America (US & Canada) that covers the 120 million households in the region. The streaming king is now relying on international subscriber growth and incremental increases in sub-prices for its “endless” expansion to continue.
Investors can no longer justify a 50x+ P/E multiple on NFLX, with only these secondary growth drivers at the company’s disposal. Netflix has lost nearly half of the $300 billion valuation it was given only a couple of months ago as shareholders abandon this pandemic winner as the global economy reemerges from the lockdowns (where Netflix thrived).
My Concerns
My Netflix worries are centered around how management will navigate this growth lapse.
Netflix has recently cleaned house at the C-suite level, and this new management team has largely been brought on in the past 3 years (or less). I’m guessing that NFLX’s Board has tasked this group of enthusiastic leaders with reinvigorating long-term growth.
My biggest worry is that its fresh management team will hemorrhage too much cash attempting to recreate its once-booming streaming growth with new ventures like its gaming segment, that won’t end up adding any value to the company or its shareholders.
Despite what some shareholders may believe, Netflix will never be able to recreate the nascent market-disrupting value that its streaming service rendered when it was introduced in 2007. Netflix changed the way the world consumes movies & TV: cutting the ad-ridden cable cord and allowing users to watch what they want when they want commercial-free.The streaming idea was such a hit that every production company with a substantial enough library has launched its own on-demand platform. This created a highly competitive landscape for Netflix and forced them to spend billions on building out their own content […]
source Meta (FB) & Netflix (NFLX) Capitulate On Earnings: Is It Time To Buy?
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