Netflix (NASDAQ: NFLX) stock has crashed 40% in 2022, so far. Today, I’m asking whether this is a golden opportunity for me to finally begin building a position in the dominant streaming service.
What’s gone wrong?
Before going on, it’s worth recapping why investor sentiment has reversed so dramatically. Much of this year’s sell-off is the result of concerns over Netflix’s slowing subscriber growth. A few days ago, the company revealed it was targeting just 2.5 million new accounts in the current quarter. That’s 4.4 million less than analysts were expecting.
But is this just a blip? I can think of a few reasons why now might be a great time to load up.
Reasons to buy Netflix stock
First, this is a business that has shown it can produce quality content. Series like Squid Game, The Crown and Bridgerton have been warmly received by critics and viewers. The company’s rapidly growing film catalogue is also doing well. Last week’s share price capitulation was as if investors believed the US giant was suddenly incapable of maintaining this form.
I also think a Netflix subscription has become so ingrained in many people’s lives (and that TV consumption has changed so much in recent years) that a lot of us wouldn’t even consider cancelling, even in inflationary times. The value for money compared to even a single cinema trip is truly astounding.
It’s also worth noting that Netflix is not alone in seeing a drop in subscriber growth. Back in November 2021, shares in Disney tumbled as it also reported that fewer people than before were signing up to its own streaming service. Isn’t all this inevitable as the pandemic enters its end-game and lockdowns become distant memories?
Worse to come?
For balance, let’s look at some arguments against buying now. It’s important to not get anchored to a price. Netflix stock doesn’t have a right to get back to its $700 record high, as much as holders might want it to. It could easily fall further as investors rotate into value stocks held back by Covid-19. And they might be right to do so. These may offer potentially better returns, at least in the short term.
Another argument is one that can apply to any company in the entertainment business, namely the popularity of whatever it produces is never guaranteed. Simply put, Netflix can throw money at a project and have no idea whether it will make a decent return on its investment. I’d need to be comfortable with this if I invested here.
Last, there’s the competition. While Netflix is the clear market leader, Amazon, Apple and the aforementioned Disney aren’t about to throw in the towel. As such, I certainly don’t think there’s anything wrong with taking a risk-off approach and buying a tech-focused fund that holds some or all four stocks.
On balance however, I’m very tempted to snap up some Netflix stock for my own portfolio. Now that previously-lofty expectations have been thoroughly reset, the company may even now surprise on the upside in its next update.
Even if this doesn’t happen, the long-term outlook — which now includes an expansion into video gaming — still looks stellar to me. And for someone with a totally different time horizon to your average fund manager, that counts for a lot.