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Why Activision Blizzard, Netflix, and Roku Stocks Dropped on Friday

By Rich Smith – Sep 4, 2020 at 3:47PM

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Three quality companies just got caught up in a sell-off.

What happened

For the second day in a row, the Nasdaq took a tumble Friday, taking down digital entertainment stocks Activision Blizzard (ATVI -1.54%), Netflix (NFLX 0.60%), and Roku (ROKU -0.60%) with it. In early trading, all three stocks tumbled more than 5% -- in fact, at one point Roku shares were down twice that.

The good news is that as the day wears on, the damage seems to be abating. As of 2:30 p.m. EDT, shares of Activision have pared their losses to just 2.5%, Netflix is off 3.5%, and Roku is down 5.5%.

But why are any of these stocks down at all?

3 colorful arrows all pointing down

Image source: Getty Images.

So what

Let me first allay your worries: There's no "bad" news impacting any of these three stocks today. No negative analyst reports, no negative press releases from the companies themselves.

The fact is, even the general macroeconomic news today is pretty positive, with the U.S. Labor Department just reporting a decline in the U.S. unemployment rate to 8.4% through the end of last month, and the August jobs report coming in at a stronger-than-expected 1.4 million jobs added (or more precisely, jobs added back since coronavirus subtracted them).  

On the company-specific news front, Activision even announced this morning that its remastered combination game Tony Hawk's Pro Skater 1 and 2 is available now. New products presumably mean new revenue for the videogame maker -- whose sales were already up a strong 38% in the most recent quarter.

Now what

The upshot: There's really no good reason for the videogame stock to be down today -- or for home streaming entertainment stocks Netflix and Roku to be down either, for that matter. Of course, I'm not sure how much comfort that is to shareholders, seeing their stocks shrink in value and not knowing any logical explanation for why it's happening.

Maybe a better way of looking at what's happened this week, though, is this: Thanks to the past two days of panicked selling, Activision Blizzard shares have gotten 5% cheaper than they sold for at Wednesday's close. Netflix stock has become 7% cheaper, and Roku 9% -- all for no apparent good reason.

If on Wednesday you owned these stocks, were satisfied with that they represented good investments in quality companies, and felt no inclination to sell, and if no real news has emerged over the past 48 hours to change your opinion in that regard, then congratulations! Now you have a chance to buy and own even more of these businesses at a discounted price.

On the other hand, though, if you've enjoyed the stock market's run-up over the past five months, but didn't know why it was happening, and weren't particularly convinced that it was justified -- maybe this week's sudden sell-off should serve as a wake-up call. Maybe the sellers are right after all?

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Netflix, and Roku and recommends the following options: long January 2022 $75 calls on Activision Blizzard and short January 2022 $75 puts on Activision Blizzard. The Motley Fool has a disclosure policy.

Stocks Mentioned

Netflix Stock Quote
$310.26 (0.60%) $1.84
Activision Blizzard Stock Quote
Activision Blizzard
$74.76 (-1.54%) $-1.17
Roku Stock Quote
$50.91 (-0.60%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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