Netflix (NFLX) Stock Plunges 10% as Ark Invest's Cathie Wood Doubles Down

Key Takeaways

Table of Contents

NFLX shares plummeted nearly 10% following disappointing Q2 revenue guidance
Annual revenue projection of $51.2B fell short of analyst consensus at $51.38B
Co-founder Reed Hastings confirmed he will step down from the board in June
Morgan Stanley maintains Overweight stance with $115 price target on the stock
Ark Invest’s Cathie Wood purchased additional NFLX shares during Friday’s decline

Shares of Netflix $NFLX plunged nearly 10% on Friday following the streaming giant’s second-quarter guidance that fell short of analyst expectations. The sharp decline erased approximately one month’s worth of gains, leaving shares hovering around $97—a 22% decline over the trailing six-month period.

Netflix, Inc., NFLX

On paper, the first-quarter results looked impressive. The company reported 16% revenue expansion, surpassing its internal projection of 15%. Net income surged 83% to reach $5.3 billion, translating to $1.23 per diluted share—comfortably exceeding both Wall Street estimates and management’s own forecasts.

However, a closer examination revealed important caveats.

When adjusted for currency fluctuations, revenue growth registered only 14%. Additionally, the substantial earnings outperformance included a $2.8 billion termination payment from Warner Bros. Discovery (WBD), which artificially inflated the after-tax profit figures.

Forward Outlook Falls Flat

The market’s negative reaction stemmed primarily from management’s conservative guidance. Despite exceeding first-quarter targets and implementing U.S. price increases in recent weeks, Netflix opted not to raise its full-year projections.

For the second quarter, management projected year-over-year revenue growth of just 13.5%—marking the weakest quarterly expansion rate in over a year. The company’s operating margin forecast of 31.5% also trailed Wall Street’s consensus expectation of 32%. The full-year revenue estimate of $51.2 billion came up short against analyst projections of $51.38 billion.

Adding to investor concerns, Reed Hastings announced his departure from the board. The Netflix co-founder and chairman revealed he will not seek re-election at the company’s annual shareholder meeting scheduled for June. While Hastings previously transitioned away from operational leadership, his complete departure from the board nonetheless rattled investors.

Wall Street Analysts See Opportunity

Despite the selloff, some institutional investors view the decline as a buying opportunity. Morgan Stanley reaffirmed its Overweight rating on NFLX shares and established a fresh price target of $115—suggesting approximately 18% upside potential from Friday’s close near $97.

Morgan Stanley analysts characterized the stock’s retreat as an overreaction, describing the company’s near-term headwinds as “lukewarm” and positioning the sub-$100 price level as an attractive entry point for long-term investors.

Cathie Wood’s Ark Invest evidently shares this optimistic outlook. Wood increased her fund’s Netflix holdings on Friday—her sole purchasing activity for the week—accumulating shares during the stock’s steepest single-day decline in recent months.

This tactical approach aligns with Wood’s established investment philosophy. Ark Invest frequently increases positions during market weakness rather than buying into upward momentum.

Netflix’s advertising-supported subscription tier continues expanding, with management anticipating ad revenue to double by 2026. The streaming platform has delivered positive revenue growth in all 24 years since going public, achieving double-digit percentage gains in 22 of those years.

Morgan Stanley’s $115 valuation target represents the most recent Wall Street assessment following Friday’s market reaction.

✨ Limited Time Offer