Netflix (NFLX 0.67%) stock tanked after its first-quarter earnings report, and a few culprits could be blamed for the drop. Two obvious ones were that guidance disappointed, and co-founder Reed Hastings is stepping down from the board. On top of that, skeptics saw Netflix’s offer to buy Warner Bros. Discovery‘s entertainment assets earlier this year as a sign that it’s running out of growth opportunities.
But the naysayers seem to be missing the momentum Netflix is building by expanding into new categories, such as live events and video podcasts. There was clear evidence in the first-quarter earnings report that these initiatives are translating into increased engagement and member growth.
Image source: The Motley Fool.
There’s a reason Japan led global member growth for the quarter. Series and films are still the heart of Netflix’s content, but live events and sports are increasingly grabbing viewer attention. In the first quarter, for instance, the World Baseball Classic in Japan drew more than 31 million viewers.
Meanwhile, Netflix is just beginning to dip its toe into video podcasts. This could become another meaningful driver of new members over time. So far, Netflix says podcast content “over-index[es] on daytime viewing and on mobile devices.”
Today’s Change
(-0.67%) $-0.62
Current Price
$91.50
Key Data Points
Market Cap
$388B
Day’s Range
$90.79 – $91.52
52wk Range
$75.01 – $134.12
Volume
72K
Avg Vol
46M
Gross Margin
49.44%
“We’ve captured about 7% of addressable revenue,” co-CEO Greg Peters said. The pursuit of Warner Bros. wasn’t a sign that Netflix is out of ideas. It reflected its strong profitability and the resources it has to pursue opportunities when they arise. That’s an advantage, not a warning sign.
Netflix posted a 32% operating profit margin last quarter as it continued to ramp up investment in new content. Its ability to expand its content library while still delivering strong margins and earnings growth is exactly why Netflix stock looks like a buy on the dip.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
