Netflix shares plunge — armageddon

Netflix shares plunge, the boom is over. Don’t Panic! This too shall pass…

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Netflix shares plunge. It’s a statement of fact — following their quarterly investor update, the share price took an 11% hit. So what?

Cultbox is about content rather than business, though for most streamers, their business is content. It matters, hence our fascination with global trends and ratings. If you’ve paid any attention to entertainment news this week, you’ll have probably seen headlines proclaiming Netflix shares plunge or variants on a theme. It’s all very apocalyptic, but we suggest reading behind the headlines. We have our own perspective but let’s be clear we aren’t financial advisors and anything we say is opinion based on publicly available data.

We had toyed with a 2,000 word explanation of how business works, why share price matters and investor psychology. Maybe another time, or read this BBC analysis. All you ready need to know is:

2020 lead to a boom a domestic consumption of television, including streamed content

Netflix was a winner from this

For whatever reason (more later) projected growth for Q1 2021 was materially higher than the outturn figures

Investors don’t like surprises, hence the share price drop.

Does it all matter?

It’s a very different kind of Netflix story from the feast of ‘boom/ subscribers up/ ratings up/…’ stories we’ve had. If you had to sell your shares at that point, you would have yielded less money than if you’d sold them the day before. We don’t think Netlflix is going bust any time soon, and the drop in share price probably hasn’t triggered a hostile takeover, so expect it to rise. Eventually.

Of course, Covid-19 is behind many structural changes in company finances, and Netflix boomed in terms of sales. The BBC item linked above has interesting language in its title; fears the coronavirus boom is over isn’t high on most people’s list of things they expect to say as most of us welcome reduction in the impact of the pandemic!

If you want to dig deeper, the Netflix Investor site has a lot of data available. We linked to the stock price and yes zoomed in on the fall. You don’t have to pull back too far to see the share price is still higher than a couple of years back, The transcript from the quarterly update included news of new releases (hence our Witcher 2 update); Netflix themselves don’t see the market as particularly saturated and don’t (publicly) seem to dwell on competition. Their root cause is the lack of new titles due to Covid delays in filming (and numerous delays to everyone’s shows such as Lucifer, The Boys, Stranger Things…).

It will be fascinating to see how this pans out, though most business are dealing with the unknown at present, and there’s no ‘blame’ going on here. We suspect even Adam Smith would find the current economic climate a challenge to interpret!

Of course it matters as Netflix want investor confidence. If they can’t sell more, they have to make cheaper or sell dearer (and also pursue thing around password sharing). It’s not simple, so expect more developments. We also wonder what equivalent news will be from the other big players. As ever we’ll keep you posted, but until then, as Douglas Adams wrote: Don’t Panic!