Here's why a Netflix pullback could be a buying opportunity
Netflix (NFLX) shares are down about 10% over the past month, fueled by a mid-July sell-off that came after the company reported revenue guidance that missed Wall Street's expectations for the current quarter.
Shares have remained under pressure in recent weeks, triggered a wider sell-off in Big Tech that continued on Monday with the stock falling roughly 3% in early trading.
But one analyst thinks the recent retreat has created a buying opportunity, arguing the company is well-positioned to hike subscription prices later this year.
"We are increasingly bullish on the recent 10%+ pullback in the stock, as we believe a Q4 US price hike is possible on the back of an impressive content slate," Jefferies lead analyst James Heaney wrote in a note to clients on Monday.
Heaney called out upcoming series like "'Stranger Things 5" and "Squid Game 2," along with the recent acquisition of live sports content like the NFL Christmas Day games and WWE Raw, which will kick off in January 2024.
The combination of that strong content slate along with potential price increases "could serve as a catalyst for ad tier adoption," he said, predicting a likely boost to year-end subscribers.
"We expect NFLX to accelerate subscriber growth in Q4 leading us to +7.45 million net adds (vs +3.75 million in Q3) and ahead of consensus estimates of +7.2 million," the analyst said.
Netflix last hiked the price of its popular Standard plan in January 2022, upping the cost to $15.49 from the prior $13.99. It also raised the price of its Premium tier by $2 to $19.99 a month at the time before hiking the cost of that planonce again in October to $22.99.
The company has yet to raise the price of its less than two-year-old ad-supported offering, which remains one of the cheapest ad plans among all of the major streaming players at a price point of $6.99 a month.
Netflix has previously said its goal is to make ads "a more substantial revenue stream that contributes to sustained, healthy revenue growth in 2025 and beyond." It will phase out its lowest-priced ad-free streaming plan as a result, making the the $15.49 Standard plan its lowest priced offering for ad-free experiences.
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Mon, August 5, 2024 at 3:59 PM GMT+1
Markets off session lows, but heavy selling continues
The markets came off their session lows, but stocks were still deeply in sell-off mode.
As of 10:50 a.m ET, the Dow Jones Industrial Average (^DJI) was down more than 1000 points. The Nasdaq Composite (^IXIC) declined more than 3.5% after plunging as much as 6% in early trading. The S&P 500 (^GSPC) lost more than 2.5%.
Global markets sold off on Monday as fears of a US recession deepened and Asian markets declined following last week's market sell-off.
A continued rise in the Japanese Yen against the US dollar has also put pressure on risk assets following the Bank of Japan's decision to raise its interest rate last week.
Mon, August 5, 2024 at 3:58 PM GMT+1
Why market action in Asia is weighing on US stocks
Stocks are tanking on Monday, continuing losses from the past several trading sessions as fears about a weakening economy have gripped markets.
The Nasdaq Composite (^IXIC) dropped about 3.5%, while the S&P 500 fell about 3% and the Dow Jones Industrial Average (^DJI) shed more than 2.4%, or about 1,000 points in early trading.
The 10-year Treasury (^TNX) yield fell about 2 basis points to hover near 3.77%, and is now down more than 50 basis points in less than two weeks. Volatility has spiked, too, The CBOE Volatility Index, known by its ticker as simply the VIX (^VIX) shot up above 60 for the first time since 2020.
The latest leg of the sell-off accelerated overnight as Japan's Nikkei 225 (^N225) dropped more than 12% in its biggest-ever daily loss after a surprise interest rate hike from the Bank of Japan. Yardeni Research president Ed Yardeni told Yahoo Finance he thinks the "large extent" of the selloff in US stocks is attributable to the moves in Japan.
Yardeni explained that an unwinding of the so-called"carry trade" spawned from speculators borrowing in Japan at 0% interest rates and then taking that money and investing in areas of the market like the Magnificent Seven tech stocks.
"Now, with the central bank tightening while other central banks are easing, the yen suddenly had a big move to the upside and that strength, really led to a lot of margin calls of these speculative positions," Yardeni said. "That's all coming unglued. And I think it's a lot of margin calls, and I think it's going to happen pretty quick, and the unwind should be over by the end of the week."
Mon, August 5, 2024 at 3:02 PM GMT+1
Online brokers are struggling to keep up with Monday's market mayhem
According to data from Downdetector, online brokerages including Charles Schwab (SCHW), Robinhood (HOOD), Interactive Brokers (IBKR), Fidelity, Vanguard, and E-Trade were all having connectivity issues early Monday.
Around a half hour into the trading session, stocks were off their worst levels of the session with the S&P 500 and Dow off around 2.5% and 2.2%, respectively. The Nasdaq was off 3%.
Mon, August 5, 2024 at 2:31 PM GMT+1
Stocks plunge, as tech leads losses and Dow drops over 1,000 points
The major averages plunged on Monday morning as markets abroad have sold off and amid intensifying worries about a weakening US economy.
The Dow Jones Industrial Average (^DJI) lost over 1,000 points. The Nasdaq Composite (^IXIC) declined roughly 6% after the tech-heavy index entered into a correction with Friday's sharp losses. The S&P 500 (^GSPC) lost roughly 4%.
Nvidia (NVDA) shares and the rest of the "Magnificent 7" stocks led the broader market plunge.
Shares of the AI chip heavyweight were down 15%, its worst day since March 2020.
Individual company news also put pressure on the stock after the Information reported the company's upcoming next-generation AI chips will be delayed by three months, potentially impacting its biggest customers like Microsoft, Alphabet and Meta.
Alphabet (GOOGL) (GOOG) and Meta (META) opened down more than 6%. EV giant Tesla (TSLA) plunged more than 9%.
Meanwhile shares of Apple (AAPL) dropped more than 10%. Over the weekend, Berkshire Hathaway (BRK-B) revealed it had cut half of its stake in the iPhone maker.
E-commerce giant Amazon (AMZN) dropped more than 8% while software maker Microsoft (MSFT) plunged 5%.
Together the Mag 7 make up roughly 43% of the Nasdaq 100 weighting. The Nasdaq 100 was set for its worst open since March 2020.
Mon, August 5, 2024 at 1:46 PM GMT+1
Markets correct through price or time
Stocks were under heavy pressure early Monday and the story is both complicated and simple — investors fear the Fed waited too long to begin cutting rates.
But the violent moves we're seeing in markets to what wasn't a great, but also not terrible, jobs report force us to turn our attention to the dynamics of the market itself rather than additional news about the economy, earnings, and so on.
Which recalls to us one of our favorite market adages: markets correct through price or time.
Meaning that when the price of any asset — a stock, bond, etc. — becomes divorced from its fundamental drivers, the price of that asset will find equilibrium by either falling in price or going nowhere while fundamentals catch up.
With fears rippling through markets that the Fed is no longer cutting rates for the right reason (inflation is at its 2% target), but for the wrong reason (the economy is tipping into a downturn), investors are choosing the former option.
The current earnings season is on track to show profits in the second quarter rose at the fastest annual pace in nearly three years. Recent market action suggests investors think expectations for future profits are simply too high.
And rather than wait to see if stocks trading at current prices can "grow into" these valuations, investors are selling first and asking questions later.
Mon, August 5, 2024 at 1:36 PM GMT+1
What to watch today
Good point by 22V Research's Dennis DeBusschere in a new note on whether to buy the dip at the open:
"If investors are going to buy the oversold condition, credit spreads and inflation expectations need to send a signal that the current economic expansion will continue."
Suffice it to say, keep an eye on those two things throughout the session.