Ark Invest founder and CEO Cathie Wood is generally considered a growth stock investor, not a value investor. Yet last week, she headed to the bargain bin to pick up shares of a company that just about everyone else was panic selling.
Wood's Ark Invest added some $17.2 million in shares of streaming giant Netflix (NFLX 2.21%) to its Ark Next Generation Internet ETF (ARKW 1.05%). That exchange-traded fund (ETF) is focused on companies that Ark believes will benefit from disruptive technologies like the cloud, mobile computing, big data, the Internet of Things, and similar technologies.
NASDAQ: NFLX
Key Data Points
The ETF's share price has doubled over the past 52 weeks and is up about 65% year to date (since Jan. 1, 2025).
But Wood is primarily known for buying stocks that are rising rapidly. Think Tesla, Nvidia, and Palantir, all of which are holdings in the Next Generation Internet ETF.
Yet last week, Netflix's share price plummeted 10% in a day after it reported its third-quarter financial results.
A disappointing quarter
Why the beatdown?
First and foremost, the company missed on earnings: Wall Street expected earnings of $6.97 a share for the quarter, but they came in more than a dollar lower, at $5.87 a share. That earnings per share figure is also lower than the first quarter and the second quarter of 2025.
In addition, investors were looking for an operating margin for the quarter of more than 31%, but the company reported a margin of 28%. And management's guidance for fourth-quarter revenue is growth of 16.7%, slower than the 17.2% of Q3. That suggested to some that Netflix's growth is decelerating.
And in fact, the stock has been falling gradually for about four months. As of this writing, it's down almost 18% from the all-time high it hit on June 30 of this year.
But Wood seems to have discounted the earnings miss, given that it was largely due to a one-time $619 million charge to resolve a tax dispute in Brazil. Without that unusual expense, the Q3 financials would have looked a lot better.
Other investors look at Netflix's valuation and see problems. And in fact, trading at a price-to-forward earnings ratio of around 47, the stock is significantly pricier than the rest of the market (the Nasdaq-100 index trades at a P/E ratio of around 33).
Yet high valuations have never been an obstacle to investment for Wood and Ark Invest. The company says it has an investment horizon of seven-plus years, not a few quarters into the future.
Image source: Netflix.
New revenue streams
In addition, some Netflix sellers may have missed an important revenue source that is growing rapidly at the streamer. In 2022 Netflix introduced an ad-driven subscription tier to its streaming platform. Just about three years later, that revenue source is building.
Netflix co-CEO Greg Peters said that ad revenue for 2025 is on pace to double that of 2024. He also said the company's rate of ad deals with corporate buyers is accelerating. And this year, it will add interactive ads. Overall, revenue for the third quarter rose a healthy 17%, to $11.5 billion.
So perhaps Wood is on to something with her recent Netflix purchase. And perhaps she saw the mass selling that occurred in the wake of the earnings release as a classic buy-the-dip moment for a company that may well fit Ark's penchant for companies that are disrupting and innovating.
After all, while ARKW is up just 57% over the past five years, about half the gain of the S&P 500 (SNPINDEX: ^GSPC) over that time, its price has quadrupled over the past three years, far outpacing the S&P 500's 76% gain in that period.
