Fortunately, Netflix, Inc. Stock Isn’t a “House of Cards”
Since diving full bore into the content streaming game, Netflix, Inc. (NASDAQ:NFLX) earned a reputation as being “next-gen Hollywood.” Increasingly, viewership trends are moving rapidly toward original content, in turn driving the NFLX stock price higher. No longer bound by traditions, such content producers have taken creative risks, to much commercial and critical success.
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But if NFLX is indeed next-gen Hollywood, it still can’t escape Tinseltown’s sins. Lately, the news stream is aghast due to movie studio exec Harvey Weinstein’s litany of sexual harassment accusations. One by one, major celebrities issued testimony against Weinstein. But perhaps the most damning accusation is that Hollywood silently endorses a sexually abusive culture.
In another disturbing and shocking story, actor Anthony Rapp alleged that A-lister Kevin Spacey made unwanted sexual advancements toward Rapp when he was only 14 years old. In a bizarre twist, Spacey apologized for the incident, while simultaneously coming out as gay.
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The Spacey scandal has significant implications for the NFLX stock price. The otherwise renowned actor stars in the Netflix original, House of Cards. In fact, The Washington Post credits the program for pioneering the streaming TV era. But in a “life imitating art” moment for Netflix, its flagship programming is now sunk in an ugly controversy.
Shockingly, though perhaps not surprisingly, Netflix suspended production of the show “until further notice.” Moreover, Netflix announced that the upcoming sixth season will be the last. On the news, the NFLX stock price lost 1%.
So far this year, Netflix shares are up nearly 59%, adding to its phenomenal rise. Five years ago, the stock was trading in the low double digits. But all good things do come to an end. Has Netflix played its last, desperate card?
Expect Some Heat on NFLX Stock
From a cursory level, I’m truly disappointed in the Kevin Spacey allegation and the way he mishandled his apology. He needed to be forthcoming and remorseful. Instead, Spacey attempted to distract the media with his “coming out.” Frankly, it’s disgusting behavior, and it has hurt many, many people working in the NFLX organization.
I also believe that NFLX stock will take some heat. As it stands, shares are very close to all-time highs. Based on the controversy surrounding Netflix, now would be an ideal time to secure some profits. Furthermore, House of Cards represents the company’s flagship program. It’s similar to AMC Networks Inc (NASDAQ:AMCX) losing “The Walking Dead” or Twenty-First Century Fox Inc (NASDAQ:FOXA) hosting the World Cup without the U.S. team qualifying for the tournament.
Speaking of Fox, it would know firsthand about losing a marquee program. After suffering another sad sexual harassment-related incident, Fox News finally had to can Bill O’Reilly. Gone was The O’Reilly Factor and any hope of gaining back stupendous ratings.
But people who are heavily levered toward NFLX stock shouldn’t worry because Netflix isn’t Fox.
Let’s get the low-hanging fruit out of the way. Netflix is firmly vested in the digitalization and streaming space. That’s the direction of TV, and it’s not going to change. Traditional broadcasters like Fox, CBS Corporation (NYSE:CBS) and Comcast Corporation (NASDAQ:CMCSA) are playing catch-up, which is obviously not a good position to be in.
More importantly, we have to appreciate Netflix’s dominance in gaining subscribers worldwide. At a time when free-to-use social media applications are struggling with subscriber growth, Netflix is opening up people’s wallets.
While subscriber growth has certainly waned since Netflix initially launched its streaming services, it’s still growing firmly in double digits.
Again, this is an incredible statistic considering that people are paying for the privilege.
It’ll Get Bumpy, But Stay the Course
Finally, I don’t see any reason for panic based on the technical charts. Over the trailing year, the NFLX stock price has steadily climbed, with just a few hiccups along the way. Significantly, the few bearish events have resulted in shares decisively reaching new plateaus.
If House of Cards was the only card that Netflix could play, I’d worry that it wouldn’t absorb the pressure. Though the political drama is a marquee name, Netflix has invested significantly in a library of original and international content. Plus, the show was probably on its way out, given mixed or negative reviews for recent seasons.
So while I expect some downside pressure against the NFLX stock price, I’m not going to get too worried. Let the markets react and do their dance. But long-term shareholders can rest easy knowing that the fundamentals are rock-solid.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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