Cathie Wood, the founder and CEO of Ark Invest, has made headlines by investing over $17 million in the streaming giant Netflix (NFLX). This move comes as many investors sold off their shares in response to disappointing quarterly results. Wood’s investment strategy is known for focusing on growth stocks, yet she recently targeted Netflix during a sharp decline in its stock price.
Cathie Wood’s Strategic Investment in Netflix
Last week, Ark Invest added approximately $17.2 million in Netflix shares to its Ark Next Generation Internet ETF (ARKW). This ETF concentrates on companies poised to harness disruptive technologies, such as cloud computing and big data.
Overview of Netflix’s Recent Performance
Despite Wood’s confidence, Netflix recently experienced a significant drop in its stock price, falling 10% after releasing its third-quarter financial results. Key financial highlights include:
- Earnings Per Share: $5.87, below Wall Street’s expectation of $6.97.
- Operating Margin: Reported at 28%, lower than the anticipated 31%.
- Revenue Growth Guidance: Projected at 16.7% for the fourth quarter, down from 17.2% in Q3.
- Stock Decline: Down nearly 18% from its all-time high on June 30, 2023.
Although the earnings report was disappointing, Wood appears to view the situation as a buying opportunity. The company’s missed earnings were largely attributed to a one-time $619 million charge related to a tax dispute in Brazil. Without this expense, the financial results would be more favorable.
Valuation and Long-term Outlook
Investors are wary of Netflix’s high price-to-forward earnings ratio, around 47, making it pricier than the general market. Meanwhile, the Nasdaq-100 index has a P/E ratio of about 33. Historically, high valuations have not deterred Wood and Ark Invest, which maintain a long-term investment horizon of over seven years.
Emerging Revenue Streams
Another aspect contributing to Netflix’s potential growth is the rapid expansion of its ad-supported subscription tier. Launched in 2022, this new revenue source is on track to double its intake in 2025 compared to 2024. Netflix’s co-CEO, Greg Peters, has announced an accelerating rate of ad deals and the introduction of interactive ads this year.
Third-quarter revenue for Netflix rose by 17%, totaling $11.5 billion, indicating that the company is still finding ways to innovate and attract viewers.
Conclusion
Cathie Wood’s investment in Netflix reflects her belief in the streaming service’s potential for future growth. Despite short-term challenges and stock market volatility, Wood may have identified an opportunity to buy at a favorable price. As Netflix adapts to changing market conditions, it remains to be seen how this strategic move will pay off for Ark Invest and its stakeholders.
