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Netflix, Peloton, Intel, Microsoft And Slumping Tech Stocks - Five Things You Must Know

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Stock futures trade mixed amid the worst week for tech since October of 2020; Netflix shares plunge on weak subscriber growth forecasts; Peloton hits back at “false” production pause report; Intel unveils plans to invest $20 billion in two chipmaking plants in Ohio and Microsoft says it will keep the Call of Duty game on PlayStation after its $69 billion Activision takeover.

Here are five things you must know for Friday, January 21:

1. – Stock Futures Mixed Amid Worst Week For Tech Since 2020

U.S. equity futures traded mixed Friday, following on from a tech-lead selloff late Thursday that extended the Nasdaq’s worst week in two years, as investors worry the the Fed’s inflation fight will intensify just as consumer-lead growth is beginning to wane.

A gloomy demand outlook from streaming service Netflix (NFLX) - Get Netflix, Inc. Report and a collapse in shares of Peloton (PTON) - Get Peloton Interactive, Inc. Class A Report amid what it called a ‘significant’ slump in interest in its connected fitness equipment added to concerns of slumping consumer demand, while a series of rate hikes in China raised the prospect of slowing growth from the world’s largest exporter as it pursues its ‘zero-Covid’ policies.

Set against bets of at least three rates hikes from the Fed this year – and possibly as many as five – the tech sector weakness bled into broader Wall Street stocks on Thursday and looks to hold sentiment in check for the Friday session as traders navigate options expiries at the close of the day and a surge in equity volatility, with the benchmark Vix index rising 47.5% over the past five days to 26.08 points.

On Wall Street, futures tied to the Dow are indicating a modest 55 point opening bell gain while those linked to the S&P 500 are priced for an 8 point retreat.

Nasdaq Composite futures are indicating a 40 point opening bell gain as benchmark 10-year Treasury note yields ease to 1.792% in overnight trading.

Netflix shares plunged lower in pre-market trading, potentially erasing all of the stock’s pandemic-earned gains, following a weaker-than-expected outlook for subscriber growth heading into the start of the year.

Netflix said it added 8.28 million subscribers over the period, missing the Street estimate of 8.4 million, and taking the overall total to 222 million. Net additions for the first three months of the year would come in at 2.5 million, Netflix said, compared to a market forecast of 5.9 million citing what it called “Covid overhang” in key overseas markets.

“We’re trying to pinpoint what that is. It’s tough to say exactly why our acquisition hasn’t recovered to pre-COVID levels,” CFO Spencer Neumann told investors on a conference call late Thursday. “When we look at the data on a competitive impact, there may be some kind of more on the marginal kind of side of our growth, some impact from competition but we just don’t see it specifically.”

Netflix shares were marked 20.2% lower in pre-market trading Friday to indicate an opening bell pricec of $406.40 each.

3. – Peloton Hits Back At “False” Production Pause Reports

Peloton shares moved higher in pre-market trading, following a Thursday slump that wiped $2.5 billion from its market value, as the fitness equipment maker hit back at reports it’s prepared to suspend production of its bikes and treadmills.

TheStreet Recommends: 5 Tips to Improve Your Financial Wellness In 2022

CEO John Foley called the CNBC report, which cited an internal memo saying the group was planning a two-month production pause amid a “significant reduction” in post-pandemic demand for its connected bikes and treadmills ‘false’, but noted the group will nonetheless ‘reset’ output levels and review the size of its workforce and take “significant corrective actions” to improve profits.

“We now need to evaluate our organization structure and size of our team,” Foley said “And we are still in the process of considering all options … to make our business more flexible.”

Peloton shares were marked 8.3% higher in pre-market trading to indicate an opening bell price of $26.24 each.

4. – Intel Unveils $20 Investment in Two Ohio Chipmaking Plants

Intel Corp. (INTC) - Get Intel Corporation Report unveiled plans Friday to invest $20 billion into two chipmaking plants in Ohio that it hopes have have up-and-running within three years.

Intel, which detailed a similar investment in Arizona last March, said the Ohio investment will create 3,000 jobs – with another 7,000 needed to build the two plants – and expand the group’s plans to take-on rivals such as Samsung and Taiwan Semi TSMC in the global semiconductor market.

“Intel is bringing leading capability and capacity back to the United States to strengthen the global semiconductor industry,” said CEO Pat Gelsinger. “These factories will create a new epicenter for advanced chipmaking in the U.S. that will bolster Intel’s domestic lab-to-fab pipeline and strengthen Ohio’s leadership in research and high tech.”

Intel shares were marked 0.5% higher in pre-market trading Friday to indicate an opening bell price of $52.31 each.

5. – Microsoft Says ‘Call of Duty’ Will Remain On PlayStation

Microsoft (MSFT) - Get Microsoft Corporation Report provided some relief late Thursday for gamers worried about the impact of its planned $69 billion takeover of Activision Blizzard ATVI with a promise to keep its ‘Call of Duty’ franchise available to users of the Sony PlayStation.

Microsoft’s head of gaming, Phil Spencer, Tweeted Thursday that the tech giant will “honor all existing agreements upon acquisition of Activision Blizzard and our desire to keep ‘Call of Duty’ on PlayStation. Sony is an important part of our industry, and we value our relationship.”

The suggestion that ‘Call of Duty’ won’t be exclusive to Microsoft’s XBox could provide some relief for Sony, whose shares were hit hard by news of the Activision takeover earlier this week, but it won’t change the broader dynamics of the deal, which have shaken the gaming industry to its core and triggered a wave of speculation as to the next move in consolidation.

Microsoft shares were marked 0.75% higher in pre-market trading Friday to indicate an opening bell price of $303.87 each while Sony ended the session in Tokyo with a 1.37% decline that pegged the stock at 12,955 Japanese yen.

835 Reasons to Invest in Netflix Stock Right Now

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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.

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