Netflix Stock Nosedive Will Continue, No Matter What

By Douglas A. McIntyre Published Jan 21, 9:15AM EST

24/7 Wall St. Key Points

Netflix Inc. (NASDAQ: NFLX) stock fell despite an apparently good earnings report with a record number of subscribers.
Shareholders do not seem to be convinced about Netflix pushing into a new line of business.

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Netflix Stock Nosedive Will Continue, No Matter What — © RapidEye / iStock via Getty Images

Netflix Inc. (NASDAQ: NFLX | NFLX Price Prediction) announced what appeared to be good earnings, but its stock fell. It will continue to fall as the media company pushes into a completely new business.

Management announced that the number of paid subscribers rose above 325 million for the first time in the most recent quarter. Furthermore, its advertising business is a remarkable success and gives the company two strong lines of revenue. Revenue increased 18% year over year to just above $12 billion. Net income rose 29% to $2.4 billion. The company forecast revenue for this year in a range of $50.7 billion to $51.7 billion.

The one thing investors can count on with Netflix is that it is so far ahead of its competition, and so much more profitable, that it will indefinitely lead the streaming industry by a wide margin. The sole exception may be Amazon Prime Video. As for streaming services, like Disney+, owned by large media companies, most are barely profitable and struggling with churn. The estimated churn rate across the industry is 5% a month. Netflix’s number is 2%.

Wall Street hates the offer Netflix has made for Warner Bros. Discovery’s studios and HBO Max, which is now up to $72 billion. Investors hope that the Paramount Skydance offer will win, despite resistance from Warner Bros. Discovery. If the Netflix offer fails, its stock will soar. That should tell Netflix’s management everything they need to know.

The $72 billion deal shows a weakness in Netflix management’s strategic plans. It signals that it does not have faith in itself as a standalone company in its current business. It has to reach for another business to have a brighter future, management clearly thinks. Unfortunately, it is reaching for a legacy business that is dying. That makes the offer even more puzzling.

There is nothing wrong with what people call “sticking to knitting.” That is, stay with the business plan that made you successful. Get better at it every day. Manage for growth and margins. Give your shareholders reason to believe that the strategy they bought into is good enough.

Netflix Stock Price Prediction and Forecast 2026–2030

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.