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Can Netflix Bounce Back From Yesterday's 6% Drop?

By Rick Munarriz – Mar 8, 2016 at 9:05AM

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The leading premium-streaming service comes under analyst attack, but the pessimism isn't warranted.

Image source: Netflix.   

The hottest S&P 500 stock of 2015 -- and 2013 before that -- just happened to be the index's biggest loser yesterday. Shares of Netflix (NFLX -1.21%) surrendered 6% of their value yesterday. The next-biggest loser on the S&P 500 slipped just 3.9% yesterday.

Netflix stock came under fire after a bearish ITG Research analyst note. The downbeat missive warns that growth in its domestic streaming business is likely to fall short of Wall Street's aggressive expectations. 

Bulls may wonder if ITG can be taken seriously as a worrywart. Shares of Netflix took a hit in January after it warned that Netflix probably only added 1.1 million domestic streaming subscribers during the holiday quarter, well short of where most rival analysts were perched as well as the 1.3 million net additions that Netflix itself was targeting.

We know how that played out. The leading premium streaming video service wrapped up the fourth quarter with 1.56 million more domestic subscribers than it had when the period began. Why is the market placing so much faith on ITG Research getting it right this time?

This hasn't been a good year for Netflix. The stock is trading 17% lower year to date, but it's probably more accurate to say that January didn't go the dot-com giant's way. Netflix stock sank through January, but it actually moved higher in February. The shares remain positive for March, too, even after yesterday's sell-off. 

Netflix stock closed above $100 on Friday. It's the first time that it has wrapped up a trading day in the triple digits since mid-January. The streak didn't last with Monday's sell-off, but it's hard to dismiss Netflix's chances of bouncing back. 

The service topped 75 million streaming subscribers earlier this year, and its pipeline of digital content has never looked better. If this past weekend's debut of the fourth season of House of Cards isn't up your alley, the new season of Daredevil  kicks off a week from Friday. With a record $10.9 billion in streaming content obligations by the end of last year, Netflix has amassed a digital library that will be hard to match. 

It's easy to see why a stock would sell off in light of a firm's warning of rapid deceleration on the domestic streaming front. Netflix is gaining more accounts overseas these days, but investors still can't ignore its stateside business where all of its profitability is derived. However, when a bearish note comes from a Wall Street pro who's been down on a company that has routinely exceeded expectations, it's hard to stay negative for too long.

Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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