The collapse of Netflix’s shares on Wednesday after the company announced its first loss of customers in a decade is the latest sweeping sign that US investors are abandoning streaming services and other winners of the pandemic and wondering if they still deserve growth stock valuations.
While Netflix shares fell 37% after the entertainment heavyweight’s disastrous quarterly report on Tuesday night, its market value has now fallen two-thirds from its peak of more than $300 billion at the end of the year. ‘last year.
Netflix’s market capitalization now stands at around $100 billion, by far the smallest among the so-called Faang stock group – which also includes Meta Platforms, owner of Facebook, Amazon.com, Apple and Alphabet, owner of Google – which fueled much of the Wall Street rally in the years leading up to the 2020 Covid-19 pandemic.
Meta Platforms, which owns Facebook, the second-least valuable Faang company, was worth around $550 billion on Wednesday, its stock tumbling around 7% as investors dumped a string of former housekeepers following the report from Netflix.
Portfolio managers who focus on high-growth stocks with expensive valuations may instinctively snap up heavily discounted Netflix stocks after Wednesday’s selloff, putting aside the company’s increasingly difficult challenges with market saturation. market, password sharing and uncertainty in markets such as Ukraine and Russia, predicted Jim Bianco, president of financial market research firm Bianco Research in Chicago.
“I think it’s going to take them a while to start recognizing that maybe Disney and Roku, Netflix, Hulu, and Paramount aren’t growth companies anymore, maybe they’ve hit their saturation point,” Bianco said.
Netflix’s poor report and stock sale impacted other streaming-related stocks: Walt Disney fell 5.8%, Paramount Global fell 8.1%, Warner Bros Discovery fell 5.2% and Roku lost 5.8%.
Walt Disney’s streaming video service boosted Disney stock immediately after its 2019 unveiling and helped the theme park operator weather pandemic-related closures. However, after peaking a year ago, Disney shares have steadily lost ground and are now trading at lower levels by the time Disney+ was unveiled.
Disney’s video streaming business has raised its futures price: earnings valuation at similar levels to Netflix in 2020, with Disney’s PE briefly hitting 72 at a time when Netflix was valued at 58 times earnings, according to data from Refinitiv. But both companies’ PEs have since fallen in tandem, reflecting tougher competition as more streaming services entered the market and the growing financial burden of producing top-tier content to attract and retain. customers.
Other companies that have profited from the pandemic have also given up more of their earnings in recent months as consumers venture outside their homes and change their spending habits. Peloton Interactive, Zoom Video Communications and Pinterest have all fallen in recent months and are now down over 60% in the past 12 months.
As competition increases in the streaming industry, Truist analyst Matthew Thornton believes Netflix is most vulnerable because it’s the biggest and most established. “They’ll feel it more than an emerging challenger,” he said.
While Disney has also been hurt by pulling out of Russia because of the war in Ukraine, Thornton said the impact has already been well telegraphed to investors. Analysts on average expect Disney to post a 29% year-over-year revenue increase to $20.1 billion when it reports quarterly results on May 11, according to Refinitiv. Analysts expect it to post net profit of $1.8 billion in the March quarter, nearly double from a year ago. — Noel Randewich and Sinead Carew, (c) 2022 Reuters