The Hunger Games has left Netflix for a while. So has the growth in Netflix's stock price.
Netflix shares have fallen for six consecutive trading days and have lost over 7% over the past month. The company reached a high of $690 per share on July 5 and is now trading around $630.
On July 18, the media giant posted its second-quarter earnings per share of $4.88 on revenue of $9.56 billion, higher than analysts forecast. The company also anticipates a third-quarter revenue of $9.73 billion, a miss compared with consensus estimates of $9.83 billion. Shares were down by 0.68% on earnings day.
Related: Netflix earnings: Analysts make key shift as stock tests record peak
Netflix’s executive chairman Reed Hastings donated $7 million to a super PAC supporting Kamala Harris’ presidential election campaign, according to a Reuters report on July 23. Netflix shares lost 0.73% that day, followed by a more significant loss of 1.05% on July 24.
Netflix shares were up over 30% year-to-date, while Nasdaq and S&P 500 only added 16% and 15%, respectively. Analysts believe the recent wipeout of Netflix may have created a buy-the-dip moment for investors.
Strong growth in ads and subscribers
Netflix added 8.05 million subscribers in the second quarter, exceeding the anticipated 4.7 million, following the 9.3 million net additions from the first quarter.
“People remain hugely excited about and inspired by premium storytelling,” the company said in a letter to shareholders, citing the Bridgerton series alone generating a massive 172 million views in the second quarter.
Related: Netflix users are losing one of its cheaper options
Netflix has also expanded into live sports, which have dominated TV ratings. The streaming giant announced in May that it won the streaming rights to two National Football League (NFL) games set to air Christmas Day, strengthening its position against competitors like Amazon Prime Video, which will air NFL's "Thursday Night Football" in September.
Netflix also said it would phase out its ad-free Basic plan in the US market. Its Standard with ads plan, priced at $6.99 per month, has been attractive and increased its ads member base by 34% in Q2.
“Ads enable us to offer lower prices to consumers and create an additional revenue and profit stream for the business,” the company said.
Netflix is shifting priorities from member growth to revenue and profit. In May, the company said it would stop reporting quarterly subscriber numbers in 2025 and focus on engagement because, according to co-CEO Ted Sarandos, “it's the single best indicator of member satisfaction.”
Buy the dip, says analyst
An Oppenheimer analyst recommended buying Netflix shares on July 30. “Netflix has the best long-term visibility within Opco's coverage and deserves to trade at a premium valuation,” the analyst wrote in a research note.
The firm sees clear revenue drivers for Netflix through 2026: continued subscriber growth in the second half of 2024, price increase benefits in 2025, and large-scale ad monetization in 2026.
Oppenheimer also says streaming consolidation will boost Netflix's viewership, with a 12% viewing share "likely up for grabs from consolidation driving margin leverage." The firm maintains an Outperform rating with a $725 price target.
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Earlier this month, Citi raised Netflix’s price target to $675 from $660 and kept a neutral rating following the company's Q2 earnings beat. The analyst believes in Netflix’s position as an industry leader and its strong growth profile, according to a research note.
BMO Capital analyst Brian Pitz also raised Netflix's price target to $770 from $717 and kept an Outperform rating on July 19. “The company's Q2 results saw higher than expected member growth, while the return-on-ad-spend should prove attractive given significant user engagement”, the analyst tells investors in a research note.
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