After Netflix plummeted more than 35%, is it still worth investing in?
US stocks were very exciting, yesterday $Netflix(NFLX.US$After the release of the first quarter report, the market immediately fled in a panic. At one point, the stock price fell by nearly 40%, then recovered some of its current declines and reached 35%.
I just bought some Netflix based on the results after “US Stocks, Japan Research 2: Internet Stocks in the US Stock Market”, which was released on the 31st of last month. Yesterday I saw a sharp decline and checked the investment logic at the time again:
Netflix's net profit curve is very good, and the revenue curve is also very good. Note that the net profit growth rate is much higher than the revenue growth rate, which shows that Netflix's scale effect is very obvious. Even if revenue continues to grow at a slow rate, net profit will still grow at a relatively high rate. Currently, the market value is 169 billion, the price-earnings ratio is 33.86, the 4-year average growth rate is 74%, and the average revenue growth rate is 26%. The valuation is also relatively low, so you can choose (⭐️⭐️⭐️).
So, did the first quarter report actually damper Netflix's growth?
Opening the income statement, revenue increased 9.8% in the first quarter, which is very good. However, operating expenses increased by 20.7%, with management expenses increasing by 34% (100 million) and R&D expenses by 25% (130 million). After these two increases, operating profit increased by only 0.6%. Although operating profit did not change much, income tax increased by 16.6% (50 million).
See the problem? The decline in profits was not due to the so-called reduction in revenue, but to increased spending. The increased R&D expenses are actually beneficial to the company in the long term and should be capitalized. However, the increase in management expenses is quite difficult. Netflix did not explain it. After all, the 300 million administrative expenses increased by 100 million, and it is still possible to fool the past out of 1.6 billion dollars in profits.
Well, the investment logic at the time,”The net profit growth rate is much higher than the revenue growth rate, which indicates that Netflix's scale effect is very obvious. Even if revenue continues to grow at a low rate, net profit will grow at a relatively high rate”, Does it still exist? I don't think quarterly reports can fully reverse this logic. Anyone who has worked in a business knows that the company's revenue within a year is seasonal, and the confirmation of income and expenses can be adjusted. The requirements for quarterly reports are very low compared to annual reports, so there is no need to focus too much on quarterly reports.
Also, the loss of subscribers this time was due to the cancellation of all users in a certain country. Excluding this Black Swan incident, the number of Netflix users is still increasing. Although Amazon and Disney have increased their competition a lot, as users who have enjoyed all three services and are still using Netflix and Amazon, Amazon's service can be described as rough, while Disney and Apple TV have problems with narrow content; currently, none of them can match Netflix.
The stock market is a combination of greed and fear. If you want to hold high-quality stocks, you must keep in mind your own investment logic, check from time to time whether your investment logic still holds true based on market changes, and then decide whether to hold, increase, or decrease your holdings. So after testing the investment logic yesterday, I bought some Netflix shares again.
This is another way to invest. Even if you see a stock you really like, you don't have to invest in it all at once. In particular, for stocks you have come into contact with for the first time, you can gradually deepen your understanding and gradually open a position. This is particularly effective in volatile market environments.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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beedeebee : Declining of user base is a major issue, Revenue growth was because of price increase, it will come to a point where users feel that they are going to stop paying. Netflix will increase price again, this will result in a death spiral. If increased profit is not because of the increasing customer base, this will be a clear red flag. Do note that they are not the only one in market. Unlike Microsoft Adobe Apple which they can command higher price and people will still continue to pay.
逍遥投资派 OP beedeebee : The decline in the user base is indeed a problem, but Netflix Inc's decline in this quarter is mainly due to the voluntary abandonment of Russian users, and there is still growth in other regions. After that, the sales team can focus more on other markets for growth. As for the comparison with other platforms, we need to give several rivals some time to prove that Netflix Inc should not be given a worse valuation in the absence of concrete evidence.
Interest related: today there is another operation to buy Netflix Inc, which has reached the purchase limit of a single stock.
beedeebee : if you dig deeper, US and Canda subscriber has drop quite alot. So it is not just Russia.
逍遥投资派 OP beedeebee :
逍遥投资派 OP beedeebee : I just realized that you wrote in English and I replied in Chinese.