Netflix Stock Up in Smoke

By Connor Smith |  Wednesday, April 20 Netflix Gets Smoked. A brutal post-earnings selloff in Netflix set the tone for a tough day for technology stocks. The Nasdaq Composite dropped 1.2%, putting it off 16% from its Nov. 19, 2021 record close. The tech-heavy index has fallen eight of the past 11 trading days and is down 5.4% so far in April. The S&P 500 index was mostly flat, off 7% from its Jan. 3 record close, while the Dow Jones Industrial Average rose 0.7% today. Netflix was the biggest loser, shedding $54.3 billion in market cap after it reported its struggles in maintaining and growing its user base. That drop is nearly the market cap of streaming rival Warner Bros. Discovery. Shares fell 35% for their worst day since Oct. 15, 2004, back when they dropped 41%, according to Dow Jones Market Data. Bill Ackman's Pershing Square was among the sellers. Ackman wrote in a letter to shareholders that the firm sold its investment in Netflix, a move that it says will reduce its year-to-date returns by four percentage points. Ackman adds: While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty. Based on management’s track record, we would not be surprised to see Netflix continue to be a highly successful company and an excellent investment from its current market value. That said, we believe the dispersion of outcomes has widened to a sufficiently large extent that it is challenging for the company to meet our requirements for a core holding. While Ackman is out, my Review & Preview colleague Nicholas Jasinski writes that the sudden drop for Netflix could provide a long-term buying opportunity at a vastly lower valuation. He writes: Management will find new ways to grow, and Netflix’s multiyear head start in streaming makes it stand out from the crowd. It is profitable, it can fund its investments in content on its own, and it still makes sense that the company will be able to buy back plenty of stock, even though the purchases are delayed. The real long-term potential is for Netflix stock to become divorced from quarterly fluctuations in subscribers as the focus shifts to earnings and free cash flow. Subscriber growth is just a crude measure of how close Netflix is to hitting the jackpot of expanding a recurring-revenue, digital-subscription business. And for those curious, the cannabis holiday -- 4/20-- didn't do much for beaten-down pot stocks. The ETFMG Alternative Harvest exchange-traded fund dropped 2.5%, while the AdvisorShares Pure US Cannabis ETF dropped 1.2%. The former is down 19% year to date, while the latter is down 30%.

 

DJIA: +0.71% to 35,160.79 S&P 500: -0.06% to 4,459.45 Nasdaq: -1.22% to 13,453.07 The Hot Stock: M&T Bank +8.8% The Biggest Loser: Netflix -35.1% Best Sector: Real Estate  +1.9% Worst Sector: Communication Services -4.3%