Netflix (NASDAQ:NFLX) stock is on the top of TipRanks’ trending stock list (see the list of trending stocks to watch today), but for the wrong reasons. It has lost over 29% of its value since reporting its Q4 financials on January 20. Further, it has declined by over 40% this year.
The significant drop in Netflix’s stock price reflects its moderating growth rate, lower-than-expected paid subscriber growth in Q4, muted forecasts, and tough competition.
It’s worth noting that Netflix added 8.28 million paid members in Q4, which fell short of the consensus estimate of 8.32 million. Further, it missed its own forecast of 8.5 million.
Looking ahead, Netflix expects to add 2.5 million paid members in Q1, taking the global paid member count to 224.34 million. This represents a year-over-over growth of 8% and indicates a further slowdown in the growth rate on a quarter-over-quarter basis.
As Netflix stock tanks on weak operating performance, Bill Ackman’s Pershing Square Capital Management is buying this dip.
Ackman Added 3.1M NFLX Shares
In a letter to investors, Bill Ackman stated that his hedge fund has added 3.1 million Netflix shares since last Friday, which has now made Pershing Square Capital Management “a top-20 shareholder in the company.”
Ackman added that the recent selloff in NFLX stock has made its valuation attractive. Further, he listed multiple reasons for his bullish view, including its solid recurring revenue base, economies of scale, content, pricing power, and growth potential, among others.
Besides Ackman, investors holding portfolios on TipRanks are also buying the dip in Netflix stock. TipRanks’ Stock Investors tool shows that about 6.1% of these investors have added NFLX stock in the last 30 days.
Despite the mentioned acquisitions of NFLX stock, TipRanks’ Hedge Fund Trading Activity tool shows that hedge funds have sold a net of 995.2K NFLX shares over the past three months.
Now What?
Jefferies analyst Andrew Uerkwitz stated that a low churn rate, strong content, and scale advantages would drive Netflix’s free cash flows. However, “too much uncertainty in the near term” led Uerkwitz to downgrade NFLX to a Hold from a Buy. Moreover, he lowered the price target to $415 from $737.
Given the uncertainty, Wall Street analysts are cautiously optimistic about Netflix. Its Moderate Buy consensus rating is based on 16 Buys, 15 Holds, and 3 Sells. Further, the average Netflix price target of $521.04 indicates 44.9% upside potential to current levels.
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