Here is my bold prediction for the earning release of Netflix ($NFLX).
It’s going to tank and here are my reasons.
Reason 1: Strong dollars
More than 50% of their revenue is coming from overseas. For example, 1 euro is now worth $1. 4 billion euros used to mean $5 billion but due to a stronger dollar, it’s worth only $4 billion. So we see a major headwind due to a strong dollar
Reason 2: Losing customers to outdoors and travel
A recent article shows that they are losing long-term customers. The data showed that overall cancellations hit 3.6 million people last quarter, an increase from the 2.5 million cancellations in the past five quarters. We saw from Peloton that people would rather travel and spend time outdoors than watching TV. We see that from our customer survey as well.
Reason 3: Inflation – Food vs. Gas vs. Netflix
With an inflation rate reaching 4-decades high, many people are spending more money on grocery shopping and definitely more on gasoline. It used to cost $20-$25 to fill up your tank before and now it’s costing $60-$70 almost every week impacting customers’ spending patterns and spending decisions. Some customers we interviewed decided to cancel NFLX subscription in order to pay for gas and put food on the table. It’s so big of a problem that Netflix itself says that the inflation is its #1 problem.
Reason 4: More competitions
Netflix price is higher than any of its rivals by a significant margin. Such as:
- Disney Plus – $8 a month
- Apple TV+ – $5 a month
- Hulu (No Ads) – $13 a month
- HBO Max (No Ads) – $15 a month
- Amazon Prime Video – $9 a month
- Paramount Plus (No Ads) – $10 a month
Reason 5: Watching Netflix and Chill is no longer a thing
Bars are open. Restaurants are open. Happy Hours are back. Social events are back. Clubs are open. Have you been to a baseball game recently? It’s packed! Moreover, watching Netflix and chill is no longer a thing.
Conclusion: I think Netflix is going to miss their numbers by a lot. I mean a lot. We might see another $100+ drop in their stock price and it will fall below $100. We just bought some large amount of put options expiring this week at $100 striking price. Again, this is our bet and we are just sharing our thesis. Do your own DD before you make any investment decision.