Are you a robot?

]

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.

Cramer says Netflix’s plunge shouldn’t scare investors about the overall market

]

CNBC’s Jim Cramer said Friday investors should remain calm about the overall stock market despite Netflix’s worst single-day decline in years, which was wiping out gains back to April 2020.

Netflix, at its lows of the day, was down more than 25% to roughly $380 per share, following slowing subscriber growth numbers after the bell Thursday. The company did beat estimates on fourth-quarter earnings. It matched expectations on revenue.

Cramer said he doesn’t believe Netflix’s disappointing results are analogous to any other firms, and the streaming video giant’s ensuing stock slide has not stopped him from looking for names to buy.

“Think about a year ago when the [market] bubble really was being inflated. Think about now, when the bubble’s kind of come down — and now we’re supposed to be worried,” the “Mad Money” host said before Friday’s open on Wall Street. “I don’t mean to be calm, but actually that’s what you have to do.”

Shortly after the open, Cramer told CNBC Investing Club members that he was adding to three holdings in his charitable trust: Bausch Health, Salesforce and Marvell Technology.

Cramer cautioned investors against heeding extreme market forecasts.

“If we’re selling because we hear people talking about how the market could go down 45%, that’s almost, that’s just an irresponsible thing to say,” Cramer said, referring to a recent market prediction made by notable investor Jeremy Grantham.

“If we’re selling because Netflix … most of the companies aren’t Netflix,” he added. While the streaming giant’s plunge was knocking the Nasdaq further into correction territory, the broader market’s declines have not been as severe.

Netflix stock hammered after earnings

]

In this video

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via Email

Netflix stock hammered after earnings

CNBC’s Alex Sherman joins ‘Closing Bell’ to discuss Netflix stock, which collapsed after the company’s earnings announcement.

835 Reasons to Invest in Netflix Stock Right Now

]

There’s little question that Netflix (NASDAQ:NFLX) has created a windfall for early investors, generating returns of more than 43,300% in 20 years. Furthermore, those who invested in the streaming stock just five or ten years ago have beaten the market by a wide margin, with gains of 290% and 3,800%, respectively, during those periods, compared to 105% and 260% for the S&P 500.

However, Netflix’s stock has recently fallen out of favor with some investors. The most common bearish narrative goes something like this: Once, Netflix was the only streaming game in town. Now, there is growing competition and a host of alternatives. Netflix won’t be able to keep up the frantic pace of original content additions and will continue to lose market share as a result. Sound familiar?

Thing is, that argument misses out on several very important factors. In fact, there are 835 reasons investors should ignore the narrative and buy Netflix stock now.

Too much is never enough

Netflix has long said that a continuing stream of high-quality new and original content is the key to its success, essentially providing programming to suit every viewing taste. Netflix isn’t taking its foot off the pedal in terms of production, either.

During the fourth quarter of 2021 alone, Netflix debuted 835 episodes of content, up more than 50% year over year and more than the next four services combined, according to an analysis by MoffettNathanson. To put those numbers in context, AT&T’s (NYSE:T) HBO Max comes in a distant second place at 302 episodes. Other well-heeled competitors also lagged behind. Amazon’s (NASDAQ:AMZN) Prime Video, Disney (NYSE:DIS)-controlled Hulu, and Disney+ rounded out the top five, with 248, 148, and 98 episodes, respectively.

And the Emmy goes to…

This strategy is bearing fruit. In 2021, Netflix came away with 44 Emmys, the most-ever awards for a single network or service. The Crown took best drama series, while The Queen’s Gambit won 11 awards out of 18 nominations.

Netflix closed out the year with a bang, with the return of a host of fan-favorite programs such as The Witcher, Tiger King, and Cobra Kai, as well as the final chapter of La Casa de Papel (aka Money Heist). The company also released a number of big-budget, feature-length movies, including Red Notice, Don’t Look Up, and The Harder They Fall. Red Notice was such a huge hit on the platform, it prompted Netflix to order back-to-back sequels – a rare move for the streaming giant.

In October, Netflix revealed that Squid Game, its original program from Korea, had become the company’s biggest TV show ever. 142 million member households watched the show in the first four weeks after its release.

The success and wide-ranging appeal of Netflix’s original content will no doubt continue to drive subscriber gains and prevent defections.

Programming drives financial results

Netflix is the undisputed leader when it comes to penetration, with a whopping 78% of U.S. households subscribing to its streaming video service. At the same time, the company continues to use the same template it employed so successfully at home to expand its presence internationally.

The streaming pioneer isn’t the money pit it once was. After burning cash for years, Netflix generated free cash flow of $1.9 billion in 2020, though it got an artificial boost from pandemic-related production shutdowns. Yet, even after ramping-up production again in 2021, the company is still generating cash, and for the first three quarters of 2021, Netflix had free cash flow of $410 million, though it expects this metric to end the year near the breakeven point.

The company announced late last year that it would no longer need to raise external financing for programming or to fund day-to-day operations.

Netflix has also seen a commensurate uptick in profitability. The company generated earnings per share (EPS) of $6.09 in 2020, up 47%. Netflix has already eclipsed that growth during the first nine months of 2021, delivering EPS of $9.91, and will add to that total in Q4. This illustrates that as its subscriber count grows, more of each subscription price drops to the bottom line.

Why now?

Even as Netflix closes out its best year ever, investors have grown cautious, and the stock is down roughly 25% from its recent high. As a result, Netflix is currently trading at a price-to-earnings ratio of less than 47, its lowest valuation since 2015.

Given the company’s robust content additions, record-setting industry accolades, and improving financial picture, in-the-know investors should stake their claim in Netflix stock – before the masses catch on.

Could Roku Become the Next Netflix?

]

Netflix (NASDAQ:NFLX) started as a mail-order service for renting DVD movies, but its pivot into streaming content was the big step that made the company the top content provider it is today.

History doesn’t always repeat itself, but it often rhymes. Roku (NASDAQ:ROKU) has built a reputation for its streaming dongles and TV software.

However, it’s in the early stages of pivoting from being a neutral streaming platform to becoming its own source of original content. It’s currently just one-tenth of Netflix’s size, but here’s why Roku could someday grow up to be as big.

Making a clear push into original programming

Media streaming is all about gaining and keeping the attention of your users. For Netflix, it’s been an original content story since it moved into streaming, slowly transitioning from licensing other people’s content to replacing more and more of its catalog with its own productions.

Roku began as a neutral platform for streaming. Its dongles would convert TVs into smart TVs, and it partners with TV OEMs to put its operating software on them to make them streaming-capable out of the box. Roku has steadily built up its user base over time, growing from 16.7 million active accounts in the third quarter of 2017, its first quarter as a public company, to 56.4 million accounts in Q3 2021, its most recent quarter.

But Roku decided that at some point, it needs to be more than just a means for watching Netflix or Hulu. It’s been steadily investing in its own original programming. this effort started with launching the Roku Channel, an ad-supported free streaming service built within the Roku platform. The early content was licensed, but Roku has now begun bolstering it with original programming. The company bought content from failed streaming service Quibi and is now producing shows and movies, and recently signed a massive 240,000-square-foot building lease in New York City for content production purposes.

Roku had to wait until the right time to attempt this. If it were to try this too soon and alienate existing streaming platforms, they might leave Roku, hurting Roku’s appeal to users. However, Roku’s skirmishes with companies like AT&T and Alphabet over contract negotiations have shown that it’s become large enough to have leverage via its user base, and the time was right to evolve. In other words, Roku has started thinking: “These streaming companies need me, so I’m not too worried anymore about stepping on their toes.”

Different approaches to generating revenue

I’ll repeat it: Streaming is about maintaining engagement on the platform. But monetizing those streaming eyeballs can be done in different ways. Netflix has always been ad-free, charging its viewers for the right to access the platform.

Roku is taking a different approach, becoming an advertising business underneath its streaming service. In other words, rather than generating revenue from consumer pockets, Roku is tapping advertisers. A recent Pixelate report estimated that a whopping 45% of ads on connected TV (devices that support video streaming) went to Roku devices in the first half of 2021. The report also stated that ad spending grew 50% year over year, so Roku is capturing a large chunk of this revenue pie that keeps getting bigger.

The company’s average revenue per user (ARPU) grew 49% year over year to $40.10 in Q3 2021 and the ARPU expansion is Roku’s primary revenue growth driver. A company like Netflix that charges the consumer must now be conscious of competing streaming platforms, and growth is more reliant on user growth. I think that Roku’s ad-tech business is a stronger model, because it seems more consumer-friendly to give users a free product like the Roku Channel with targeted ads versus charging them monthly fees.

Is Roku a buy today?

Roku’s user growth has been affected by the global supply chain issues, along with a marketwide sell-off of technology and growth stocks, and Roku’s fallen a long way from its previous highs. However, it’s given investors a much more attractive valuation on the stock.

The price-to-sales ratio has come down from more than 30 to less than 10, about on par with its pre-pandemic valuation. Meanwhile, the company is arguably much stronger today. Revenue continues chugging higher, while the business is becoming increasingly free cash flow-positive.

Analysts are looking for 35% year-over-year revenue growth in the 2022 fiscal year, which works out to nearly $3.8 billion. With the stock’s valuation at these affordable levels, I think investors could reasonably expect it to appreciate at a similar rate to how the business grows, making Roku a compelling investment idea.