All On Netflix

Last week, Netflix (NFLX) reported earnings and beat EPS by $0.51. The stock plummeted 21% after reporting a slow down in subscription growth and hit sub 400 which had not been seen since 2020. Investors shied away from a “generational buying opportunity” out of fear the stock may continue lower. The federal reserve set to raise interest rates in March, some investors are staying away from the technology sector as a whole as the ability to borrow money will hurt growth stocks. However, one investor stepped up to the plate and took a swing at one of the tech giants.

Bill Ackman announced that his fund had invested “in 3.1 million shares of Netflix”(Forbes). This investment makes Pershing Square Capital one of the top 20 investors in the company. Ackman believes the company has the ability to retain subscribers even when increasing prices. “He also pointed to its large pipeline of content, which could help fend off competition and boost margins.” (Forbes) as more and more streaming services enter the market. Shortly after the news had been released, Netflix’s own CEO purchased 51,440 shares of the company between January 27th and 28th.

What does this mean for investors? At the end of the day, demand and performance will be the driving factor in the stock’s future performance. Investors should not focus on subscription growth and instead focus on how the company uses its cash flow to increase its profit margin. Netflix’s recent series “Squid Games” gave the company a $1 billion dollar profit and with more in-house production surpassing expectations the company has a strong outlook on future projects. Netflix is currently trading around $400. Whether it be an entry here or at a lower price, the knowledge that a renowned investor such as Ackman is backing you as well as the company’s own CEO should boost confidence. Year over year the stock has moved alongside other growth giants granting investors with well-sized gains. Moving forward it is likely that the company continues to do so as consumers transition from cable to subscription services. This company is one worth keeping an eye on.

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