Shares of Netflix, Amazon take a tumble
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What a difference a year makes.
Netflix shares slumped nearly 10% in afternoon trading Wednesday, as volatility on Wall Street continues to plague the streaming media giant.
The 2016 slump follows a year during which Netflix was the top performer among S&P 500 stocks. Since closing above $114 on December 31, Netflix shares have dipped 9%. Netflix (NFLX) closed Wednesday down more than 8.5% at $106.56.
The plunge follows a note from ITG’s Steve Weinstein forecasting 1.13 million U.S. subscribers for the current quarter, down from Netflix guidance estimating 1.3 million, and below Wall Street estimates of 1.37 million. The company also says total subscribers for the fourth quarter will miss forecasts.
Earlier this year, analysts at Baird dropped their price target for Netflix to $115, citing the heavy costs incurred by creating original programming to retain customers. In October, Netflix missed quarterly subscriber targets in the U.S., reporting more than 800,000 new subscribers.
Netflix isn’t the only member of FANG — the acronym for the potent stock combo of Facebook, Amazon, Netflix and Google. Shares of Amazon (AMZN) sunk more than 5% to close at $581.81.
“All the high flyers are being taken down today, including Amazon,” said Colin Gillis, BCG financial analyst.
That said, there’s a reason Amazon’s losing ground, both because of its previous surges and because of “the question marks that are still embedded in the business model,” Gillis said.
Still, he sees most of Wednesday’s dip as simple retracement. “What goes up can come down,” he said.
Forrester Research analyst James McQuivey agrees noting that “anything that doubled in a single year is fair game given current global uncertainty.”
Netflix does face challenges from increased competition for subscribers and for licensed and original content from Amazon, Hulu and others, as it continues its global expansion. But Wednesday’s dive, McQuivey says, has “much more to do with basic risk calculation. If you’re worried the market will tumble under general stress, you try to anticipate where losses will stack up by looking at the businesses that had the highest stock price growth in the past year and assume that they are the most vulnerable to a drop.”
You don’t need to be a keen observer to note that Netflix has a market cap ($45.5 billion) approaching that of Ford Motor Co. (F) at $48.4 billion, but generates about 4% as much revenue at similar operating margins. “It would mean that investors who put money into the stock in 2015 were expecting massive growth for the foreseeable future,” said McQuivey, who is also also author of Digital Disruption: Unleashing the Next Wave of Innovation. “Maybe the stress of today’s market finally made some of them rethink that assessment.”
However, BTIG analyst Rich Greenfield, appearing on CNBC Wednesday after the market’s close, remained bullish on Netflix. With a potential of 65 million U.S. customers and an expanding international reach, Netflix will likely build towards a market cap of $55 billion.
“If you look at the U.S. opportunity and combine it with overseas, the stock could be substantially larger especially when you look at the cable bundle starting to really collapse,” he said.
In the ever-shifting balance of TV providers and content companies there will be winners and losers, Greenfield said. “If you want to play winners, you go long Netflix and short Disney. I think that exactly why companies like Time Warner are thinking about whether they need to be put up for sale.”
Contributing: Elizabeth Weise and Mike Snider
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