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What’s The Deal With Netflix

Netflix’s (NFLX) stock price has been extremely volatile over the last six months, ranging from a high of $124.84 to a recent low of $53.87, in that time. I first bought into the stock for clients last November in a range above $85 after a steady decline in the stock price over a period of months. Since then, the stock has tumbled again, and I’ve average down while keeping the total position less than 5% of the Core Model Portfolio.

The company reported very strong Q1 revenue growth of 21%, domestic streaming subscribers jumped by 1.7 million to 23.4 million, international subscribers grew by 1.2 million to 3.1 million, and total unique subscribers grew by 2.9 million to 29.1 million The second quarter saw revenue growth of only grew 13% and although it posted better than expected earnings, the stock was again hit hard. Netflix said it may be “challenging” for it to meet its goal of adding 7 million new streaming subscribers in the United States this year. It cited the airing of the Olympics as a potential drain on obtaining new subscribers. It also warned of impending losses for the year as it expands into new markets, namely Europe.

I am taking the view Netflix is being conservative in stating its ability to reach 7 million domestic streaming net adds. There is competition out there from content providers but it doesn’t seem to be affecting Netlix’s business much. Seems the story hasn’t changed much from when we first bought in so it simply makes sense to average down.

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Disclosure: At the time of this writing, I and the clients of Brick Financial Management, LLC owned shares of Netflix (NFLX).
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