Is Netflix’s collapse a warning sign for stocks?
What is it?
After growing subscribers every quarter for over a decade, that trend came to an end.* Netflix stock got hit hard last week after investors sold on bearish news.
“Netflix said it shed 200,000 subscribers in the first three months of the year, when it had been expecting to add 2.5 million. Netflix’s stock dropped 30% when the market opened on Wednesday, instantly wiping more than $45 billion off the value of the company.”*
Why does it matter?
We think that as consumers around the world continue to feel the pinch of higher prices on almost everything they consume, they may be forced to make decisions about what they want to spend their hard-earned money on. In our opinion, we may see over the next few weeks more companies like Netflix that have high-growth expectations, report disappointing earnings. This may prove troublesome for the markets.
“The streaming giant, whose stock had already dropped more than 40% year-to-date, blamed the attrition on increased competition for viewers and Russia’s invasion of Ukraine. Netflix said its decision to pull out of Russia cost the company 700,000 subscribers.”
While wars may have added to the setbacks, we believe inflation is causing people to redirect their money to first fulfill their basic needs.
“Food and energy are people’s priorities right now, not watching ‘Stranger Things,’” CMC Markets chief market analyst Michael Hewson had said.
This goes to show how the economic conditions have changed and are starting to influence families around the world.
“Hewson said the stock plunge shows that Netflix was extremely overvalued, as investors — flush with cash during the pandemic recovery — fed a huge rally.”*
As economic conditions tighten, we will see how companies are able adapt and survive a difficult environment.
Tesla on the Rise
What is it?
Tesla outperformed its earnings estimates last week sending the stock price to over $1,000 per share on Thursday.** “Musk noted that despite COVID-19 related shutdowns at its key Shanghai manufacturing plant recently, Tesla production has come back with a ‘vengeance.’”**
Why does it matter?
There is more to Tesla than just the cars. It is important to note that Tesla started trading higher after positive news around the cars. However, the long term vision for Tesla is not all about cars. In a few years, Elon musk could be ramping up production on the Tesla Optimus robots.
“The robot, 5-foot 8 inches and 125 pounds, is designed to perform repetitive or mundane tasks that humans hate (or can’t be hired to do in a tight labor market).”**
“‘The importance of Optimus will become apparent in the coming years. Those who are insightful or who listen carefully will understand that Optimus ultimately will be worth more than the car business and worth more than full self-driving, that’s my firm belief.’”** Musk said.
By not only focusing on electric vehicles, Tesla is diversifying their products in a way that could lead to greater earnings in the future. These human-like robots could become a part of our reality sooner than you may think.
Other articles we found interesting this week:
Elon Musk: There will likely be a humanoid robot in every home by 2050
Rising Rates Threaten Companies Acquired in LBO Boom
Biden unveils new weapons package for Ukraine
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Sources:
*Julia Horowitz. “Netflix’s collapse is a warning sign for stocks”. 4/20/22. CNN Business. https://www.cnn.com/2022/04/20/investing/premarket-stocks-trading/index.html
**Brian Sozzi. “Tesla CEO Elon Musk: ‘People do not realize the magnitude of the Optimus robot program’. 4/21/22. Yahoo Finance. https://finance.yahoo.com/news/elon-musk-tesla-optimus-robot-102430216.html
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