Even though Netflix (NASDAQ:NFLX) is the heavyweight champion of streaming in the U.S., the company still has to prove itself from time to time. Netflix showed its popularity, but the market was unimpressed. After reviewing all the relevant facts, you’ll see that Netflix stock should be higher.
Just remember, sometimes the crowds are irrational, and that’s where great opportunities come from. So, grab your popcorn and remote control, folks. The next episode will feature a stunning share-price rally as the market finally appreciates Netflix’s outstanding results.
Netflix Stock Declines Despite Solid Subscriber Growth
In the second quarter of 2024, Netflix gained a whopping 8 million subscribers, up 16% year over year. With that, Netflix had 277.7 million memberships globally.
Just let those numbers sink in. They’re even more impressive when we consider that Wall Street only expected Netflix to have added 4.5 million new subscribers.
Netflix generated $9.56 billion in revenue in Q2 of 2024, up 17% year over year. The company also recorded earnings of $4.88 per share. Both results beat the analysts’ consensus estimates.
Yet, the market sent Netflix stock down 6% in post-market trading, although the selling pressure soon subsided. Apparently, some stock traders were displeased because Netflix guided for third-quarter revenue of $9.73 billion.
That’s a “miss” when compared to the analysts’ consensus estimate of $9.83 billion, but it’s still higher than the $9.56 billion in revenue that Netflix reported for Q2 2024.
Netflix to Phase Out Its Cheapest Ad-Free Plan
In other news, Netflix is getting ready to eliminate its cheapest advertisement-free subscription plan in the U.S. and France. This doesn’t mean Netflix will get rid of its $6.99-per-month ad-supported plan, which “had 40 million global monthly active users, up from five million a year ago,” according to The Wall Street Journal.
Clearly, Netflix’s ad-supported plan is quite popular. I makes sense for Netflix to keep this plan available since it generates advertising revenue and might persuade some people to upgrade to a pricier subscription plan.
Does it make sense for Netflix to drop its $9.99-per-month “Basic” plan, though? Netflix co-CEO Greg Peters believes that the answer is definitely yes.
Evidently, dropping the “Basic” plan overseas has been successful so far, as the company eliminated it last year in Canada and the United Kingdom. “We’ve had the confidence to move forward with that change in the U.S. and France, so that’s an indicator of how it’s going,” Peters stated.
Netflix Stock: Thank the Market for Its Irrationality
Is it smart for Netflix to eliminate its cheapest ad-free plan in the U.S. and France? Only time will tell. Perhaps it will prompt some people to upgrade their Netflix subscriptions.
That’s an unknown, but here’s what I know for certain. Netflix has a massive subscriber base that’s still growing steadily. Moreover, the company is a revenue grower that expects to post solid sales in the current quarter.
Therefore, investors should thank the market for being irrational and grab some Netflix stock before it pops in the coming weeks.
— David Moadel
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Source: Investor Place