Key Takeaways
- Netflix stock plummeted approximately 10% Friday following disappointing Q2 projections
- Annual revenue projection of $51.2B fell short of Wall Street’s $51.38B estimate
- Co-founder and board chairman Reed Hastings revealed plans not to pursue re-election in June
- Morgan Stanley maintained its Overweight stance with a $115 price objective
- Cathie Wood’s Ark Invest purchased shares during the decline, expanding its NFLX holdings Friday
Shares of Netflix $NFLX plunged nearly 10% Friday following the streaming giant’s second-quarter projections that fell short of analyst expectations. The selloff erased approximately one month’s worth of stock appreciation, sending shares to approximately $97, representing a 22% decline across the last six-month period.
The first-quarter results appeared robust at first glance. Top-line growth reached 16%, surpassing Netflix’s own 15% projection. Profit surged 83% to $5.3 billion, translating to $1.23 per diluted share, exceeding both Street consensus and internal forecasts.
However, the impressive headline figures contained notable caveats.
Revenue expansion on a constant-currency basis registered only 14%. Regarding the substantial earnings outperformance? It included a $2.8 billion termination payment from Warner Bros. Discovery (WBD), which inflated post-tax profits.
Forward Outlook Falls Short
The primary concern stemmed from future expectations. Netflix declined to increase its annual guidance despite exceeding Q1 objectives and implementing U.S. subscription price increases the previous month.
The company’s second-quarter revenue growth forecast of 13.5% year-over-year would represent its weakest top-line expansion during the past twelve months. The projected operating margin of 31.5% also underwhelmed compared to the Street’s 32% expectation. Annual revenue guidance of $51.2 billion trailed analyst consensus of $51.38 billion.
Additionally, news emerged regarding Reed Hastings. The Netflix co-founder and board chairman announced he would not seek re-election during the company’s June annual meeting. While he previously transitioned away from operational responsibilities, his board departure nonetheless captured investor attention.
Morgan Stanley Maintains Confidence
Not all analysts turned bearish. Morgan Stanley reaffirmed its Overweight recommendation on NFLX and established a fresh price objective of $115, suggesting approximately 18% appreciation potential from Friday’s close around $97.
The investment bank’s research team characterized the decline as an opportunity, describing the company’s short-term challenges as “lukewarm” and identifying the drop beneath $100 as a potentially favorable entry level.
Cathie Wood’s Ark Invest shared this perspective. Wood expanded Ark’s Netflix holdings Friday, her sole purchase day that week, accumulating shares during its steepest decline in recent weeks.
Wood’s action aligns with her established investment approach. Ark frequently increases positions during downturns rather than pursuing upward momentum.
Netflix’s advertising-supported subscription tier continues expanding, with management anticipating ad revenue to double by 2026. The streaming service has delivered revenue growth of no less than 6% annually throughout its 24-year history as a publicly traded entity, achieving double-digit increases in 22 of those years.
Morgan Stanley’s $115 price objective stands as the most recent analyst assessment on the stock following Friday’s decline.
