It's hard to be a Netflix (NFLX -2.69%) investor right now. The streaming giant has a few bright spots in terms of growth, but the stock has declined more than 40% in the past 12 months and is just a few dollars off its 52-week low. So what's wrong with Netflix?
The business itself isn't broken. Netflix reported a 13% increase in second-quarter revenue from the year prior at more than $12.6 billion. Operating margin and free cash flow slipped, but some of that can be attributed to tax payments the company owed for receiving $2.8 billion from Warner Bros. Discovery for the failed acquisition.
The bigger issue for Netflix is twofold. First, competition is fierce in this space. In particular, YouTube is gaining traction and stealing market share, which worries analysts. YouTube is owned by Google, whose parent company is Alphabet.
Image source: The Motley Fool.
Secondly, Netflix's guidance left Wall Street wanting more. Analysts were expecting $13 billion in revenue in the third quarter, but Netflix thinks it'll be closer to $12.86 billion. The near term won't be easy for Netflix, but its ad business is growing steadily, and it's doing everything it can to deepen subscriber engagement. Netflix is no longer just about film and television shows; it now offers gaming, podcasts, and access to live events. These growth levers will be important to capitalize on in the coming years.
NASDAQ: NFLX
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I'm still cautiously bullish on Netflix when considering the longer-term picture. Netflix maintains pricing power, an expanding ad business, and multiple ways to engage its viewers. When Netflix releases earnings in late October, I don't expect a massive turnaround, but I would hope to see more signs of sustained growth.
