Netflix Sheds $24 Billion in Value in Six Days After Growth Miss

[Steve Timko]

https://www.hollywoodreporter.com/news/netflix-sheds-24-billion-value-six-days-growth-miss-1226463

[Tom Wolper]

On Tue, Jul 23, 2019 at 7:57 PM Steve Timko <steve...@gmail.com> wrote:

https://www.hollywoodreporter.com/news/netflix-sheds-24-billion-value-six-days-growth-miss-1226463

Quoting the article:

"To be sure, longtime holders of Netflix stock have profited mightily as its shares have surged 3,300 percent in less than nine years, but analysts don't expect anything near that sort of return going forward, and the heavy volume of trading over the past nine days suggests many investors are cashing in on their big gains."

A lot of trading now is algorithmic so the reason behind a big move on a stock might have less to do with what any trader or analyst thinks and simply be a positive feedback (snowballing) reaction to a minor mathematical blip. As the analysts note this might be the end of Netflix's meteoric rise and the start of a plateau in their stock price.

[Doug Eastick]

I've read at least two books on algorithmic trading. This mention does not surprise me. Trades are decided and done in milliseconds.

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[Tom Wolper]

On Wed, Jul 24, 2019 at 11:28 PM Doug Eastick <eas...@mcd.on.ca> wrote:

I've read at least two books on algorithmic trading. This mention does not surprise me. Trades are decided and done in milliseconds.

The comment about algorithmic trading was mine, not a quote from the article. The intent was to say that the change in stock price did not come from analysts researching the change in stock price, drawing conclusions, and passing that information to investors. When the bots detected unusual activity from Netflix (possibly in milliseconds) they were triggered to sell the stock. Whatever the analysts had to say was moot.

[Adam Bowie]

One of the smarter pieces of commentary I heard on this fall came in a podcast (Slate Money). The contributor pointed out that if you say you're going to do something - say, get 500k new subscribers this quarter - then that gets priced into the valuation. If you miss on those numbers, then the valuation is slightly out of whack, and you see a decline. 

As ever with these things, you have to look over the longer term rather than make snap judgements from a single day.

Truth be told, I have no idea if Netflix's model can work in the long run. It seems to me that while they've ramped up production to cover all those shows that they'll be losing in the next 6-24 months. But I can't see that they can ever stop. They can hardly sit back and say, "Well we've made a dozen Adam Sandler movies now. Why don't you just keep watching those on rotation?" Scarily, they're going to have to make a dozen more (I admit it. I watched Murder Mystery. Truly "below average." Some great actors in there absolutely coasting along.)

And while international can take the weight off US numbers, that isn't necessarily a panacea. Tastes vary massively around the world. Unsurprisingly, people like locally and culturally relevant TV. Want to be big in India? You have to make Indian dramas. Want to be big in Brazil? You need local stuff. Want to be big in Turkey...? You get the picture. 

Adam

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