Netflix stock dives after subscriber miss, but it could be a buying opportunity
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Netflix Inc (NASDAQ:NFLX) stock tumbled in after-hours trading after the company reported disappointing subscriber numbers with its earnings report. However, at least one analyst says the subscriber miss presents a buying opportunity for investors.
Netflix posts a slowdown in subscribers
In its first-quarter earnings report, Netflix said approximately 3.98 million users subscribed during the quarter. However, analysts had been expecting the video streaming giant to report 6 million new subscribers. In 2020, it added 15.8 million new subscribers amid the worldwide lockdowns due to the COVID-19 pandemic.
Netflix said the lack of new shows could have contributed to the slowdown in subscribers, but it expects to add sequels to its most popular shows in the coming months. The company added that it expects low new subscriber counts for the first half of the year while it works on adding those sequels.
While the pandemic boosted the company's subscriber count, it also interrupted its production schedule, making it impossible to add new content. Netflix expects to add only 1 million subscribers during the second quarter, compared to the previous projection of 5 million.
Despite the weak subscriber numbers, Netflix posted $7.16 billion in revenue and $1.71 billion in net income. The video streaming giant expects the second half of the year to be better for subscribers, as it plans to add new seasons of The Witcher, Money Heist and You. Netflix is also working on adding the action film Red Notice and a number of other new titles.
Concerns about competition
In addition to the lack of new content, Netflix is also facing off with a growing number of competitors in the video streaming business. Disney+, which has been around for a relatively short amount of time compared to Netflix, already has 100 million subscribers.
Netflix has about 207.6 million. On the company's earnings call, Chief Executive Reed Hastings said that for 10 years, the company was "growing smooth as silk," but subscriber growth is "a little wobbly right now."
Netflix stock plunged 11% in after-hours trading and remained down in the premarket hours. The decline wiped about $25 billion off the video streaming firm's market capitalization.
Is this a good time to buy Netflix stock?
Bank of America analyst Nat Schindler said in a note today that Netflix stock frequently rallies in the months following a subscriber shortfall. He explained that some of the stocks' most significant gains occurred 12 months after a subscriber miss.
For example, the company missed subscriber projections in the first quarter of 2017, but its stock had surged 134% a year later. Schindler added that Netflix stock is more volatile in the month after it comes up short on subscribers because investors are trying to work out the reason for the miss.
The analyst added that price action shows that Netflix's infrequent subscriber misses "usually create particularly attractive opportunities as investors read too much in the quarter-to-quarter fluctuations of the business."
Netflix is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders' families.