Is the Netflix stock crash a buying opportunity?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jan 22, 2022
  • Netflix stock lost all pandemic gains.
  • Subscribers’ growth and broader tech market crash weighed on investors' sentiments.
  • The selloff presents an attractive entry point.

Netflix,Inc. (NASDAQ:NFLX) announced fourth-quarter earnings results on Thursday, January 20, after the market closes.

Netflix shares fell 21% after releasing earnings as investors reacted to subscriber growth miss. With the latest drop in price, the stock has fallen by about 35% since the beginning of this year. The stock is currently trading below $400 for the first time in 20 months.

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Buy Netflix on Panic Selling

Netflix’s business is healthy despite subscriber growth falling slightly short of expectations. The company’s fourth-quarter revenue increased 16% year over year, while earnings of $1.33 per share topped expectations by a wide margin of $0.50 per share.

Its global subscriber addition of 8.28 million was just shy of its own expectations of 8.5 million and Street forecasts of 8.32 million. The world’s largest streaming company now has 221.84 million global paid members, an 8.9% increase compared to the prior-year period. 

Besides subscriber growth, the company’s stock price is also likely to be strongly influenced by several other metrics, including strong margins and positive free cash flows.

The company’s executives are aiming for an operating margin of 19%-20% in 2022. In addition, throughout 2022 and beyond, free cash flow is likely to be positive.

The margin and cash flow targets look achievable because the company has recently raised its prices in the largest markets like Canada and America. The company strongly believes that price raises will not impact its audience growth despite increasing competition from Disney, Apple, and other players. 

“Mostly, we’re listening to our members, and iteratively doing this walk where … engagement, and churn, and acquisition is high,” Chief Product Officer/Chief Operating Officer Greg Peters said.

Another factor is Netflix’s entry into the booming gaming market. Peters says the company is open to buying some big-game intellectual property. He adds that building something from scratch would be a “multi-year opportunity”. 

Technical Analysis

Source – TradingView

In the past three weeks alone, Netflix’s stock price has lost around 35% of its value. It seems a good idea to buy a stock of a company like Netflix that has strong future fundamentals on panic selling. 

Summary

Currently, the stock is trading below $400, its lowest level since April 2020. The stock price has already taken into account the impact of a missed paid subscription target in the fourth quarter. The company appears in a strong position to generate healthy margins and strong free cash flows ahead to support its growth plans. 

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