Netflix below $70: the market is questioning whether people are actually watching Netflix
Shares of Netflix $NFLX traded yesterday at $69.23 and fell as low as $68.88 during the day. That puts them down about 44% from their 52-week high of $124.86, while the S&P 500 index $^GSPC is up 13% this year. It's not just one piece of bad news. Several have piled up, and they all revolve around viewership.
Viewership is falling, YouTube is growing
According to data highlighted by HSBC, Netflix's share of U.S. TV viewing fell to 7.8% in July, a multi-year low. The number of hours watched grew only 2% in the first half of the year. YouTube, meanwhile, hit a record 14.2% share in the same period. It offers creators higher payouts and even direct financing in exchange for exclusivity, and it's launching a "Shows" format that resembles classic Netflix series.
Wells Fargo: $57 target
Wells Fargo $WFC analyst Steven Cahall gave the stock a sell rating with a $57 price target. He expects viewership of Netflix's top 100 original shows to drop by more than 20%. In his view, Netflix lacks big original series, and it's starting to show in the numbers.
The lost Warner Bros. and weaker results
On top of that, Netflix lost the battle for Warner Bros. Discovery $WBD, which went to Paramount Skydance $PSKY. That cost Netflix a fast track to a strong catalog. It missed analyst estimates in the second quarter, gave a cautious outlook for the third, and insiders, including Ted Sarandos, have been selling the stock in recent weeks.
Why viewership matters so much
Yet the company is far from going under. Revenue is growing 13% year over year, operating margin is improving, and the P/E around 22 is the lowest in years. The problem lies elsewhere. Netflix is increasingly betting on advertising, and advertising is paid based on how much time people spend on the platform. When viewership falls, it weakens exactly the part of the business that Netflix was supposed to grow in the coming years.
The key date is October 20, when Netflix reports third-quarter results. The $70 level now acts as important support. If the stock definitively breaks below it, the Wells Fargo target of $57 will no longer look exaggerated. But if Netflix shows that viewership is holding and advertising is growing, the current price could be one of the most interesting in years. I'm counting on both scenarios.
If the stock fell to $60, I would get back into this company—I already held it once in my portfolio but sold above $80 with a 20% gain.
