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Why is Netflix stock falling today? It’s not about password sharing or subscribers.




Concerns that Netflix
‘s

cracking down on password sharing would be harmful turned out to be unfounded. Ditto with concerns about the new ad-supported tier.

Netflix blew expectations for subscriber growth out of the water. The company missed Wall Street’s revenue hopes and had slightly weaker-than-expected guidance for the third quarter. But the 5.6% drop in shares in the premarket Thursday, to $450.66, seems completely out of proportion if that was the reason people are selling.

There may be some knee-jerk reactions after the shares more than doubled in the past year. Some investors may have decided to buy until the earnings to sell on the news.

Benchmark analyst Matthew Harrigan identified the real problem before earnings were released. He has a sell rating on the stock, although he raised his price target to $293 from $250 on July 1[ads1]8.

With many competitors in streaming now, Netflix is ​​only as good as the content. The Hollywood writers’ and actors’ strike is therefore a major problem for the company, even though, as it turns out, it actually increases profits in the short term. Competitors also offer live sports and news, which Netflix doesn’t — at least not yet.

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“Even with Netflix’s advantages as far as new content inventory and more substantial foreign production not subject to the shutdown of US labor, it is conceivable that 2024 growth could be dampened by protracted strikes,” Harrigan wrote. “The level of mutual bitterness in the entertainment media is worsening.”

That’s the spark for Netflix. Without new and unique programming, it doesn’t look that special.

Of course, other analysts disagree. Jeffrey Wlodarczak at Pivotal Research Group raised his price target on the stock from $535 to $600 after Wednesday’s earnings.

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“Netflix remains a very affordable, arguably underpriced, entertainment product, and management has demonstrated a continued ability to succeed on price,” he wrote in a note Thursday. “We advise investors to take advantage of the pullback and add to positions.”

Write to Brian Swint at brian.swint@barrons.com



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