The Power of Predictive Data (A Netflix Story)

By Chris Lillard

I love “Stranger Things,” the wildly popular Netflix Inc. (NFLX) series about a group of kids who discover a supernatural secret hidden in their small town of Hawkins, Indiana.

I eagerly awaited the premiere of Season 4 last May, and I’m keeping a close watch on when we can expect the release date for the final season.

But as much as I love the show and the service, I know I can’t let my emotions get in the way of investing.

And heading into the April 18 earnings report, our friends at LikeFolio said they were “confidently bearish” on Netflix.

Their data showed a massive spike in Netflix cancellation mentions:

Their data also showed a 30% year-over-year (YoY) decline in Purchase Intent mentions (how many people have bought or plan to buy a product or service):

LikeFolio nailed it.

Here’s what Netflix reported:

⭕ Revenue of $8.16 billion was below estimates of $8.18 billion.
⭕ The addition of 1.75 million subscribers was lower than the 2.3 million expected.
⭕ Netflix anticipates earnings of $2.84 per share on $8.24 billion in the second quarter, well below Wall Street forecasts of $3.05 per share on $8.5 billion in revenue.

The NFLX stock price initially dropped as much as 12% following the report and opened at $324.21 on April 19, a loss of 3.2% from the previous day’s open of $335.00.

The results call attention to a few headwinds Netflix will need to figure out how to get around:

  1. This is no longer the “lockdown” world of when COVID-19 first started spreading. People are going outside and traveling again, and they have more entertainment options than just streaming shows and movies at home.
  2. Inflation remains high and odds of a recession are ticking up. People have to scrutinize each and every place where their hard-earned money is going. And with so many streaming choices out there between Amazon Prime, Disney+, Hulu, YouTube TV, and Paramount+, to name a few, Netflix has to make sure its content and price tiers can entice new customers and satisfy existing ones.
  3. Going back to the content, Netflix paid $16.84 billion for content in 2022, which was 4.9% less than in 2021. It’s expected to spend $17 billion in 2023, so the company really needs to make sure it is getting the most bang for its buck from the content it’s purchasing. “Stranger Things” was the top streamed program in 2022, but Disney+ won the war in movie streaming last year, with 10 out of the top 15 streamed movies.

Outside of that, we’ll also have to wait and see if the company’s plan to crack down on the 100 million households sharing accounts by offering “paid sharing” by the end of June is the revenue booster it’s expecting. Netflix has launched a pilot program in Costa Rica, Chile, and Peru, where it costs $2 to $3 to add an extra member account.

I can’t wait to turn to Netflix as an excited viewer of “Stranger Things” Season 5. But as an investor, I’ll be keeping my distance for now — and turning to the data, profit opportunities, and warnings our friends at LikeFolio share in their free newsletter, Derby City Daily.

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