Netflix Falls After Inflation Exceeds Expectations

Key Insights

• The U.S. reported that inflation reached multi-decade highs in May, putting significant pressure on markets. 
• Netflix stock underperforms as traders are worried that high inflation will force some consumers to optimize their subscriptions. 
• Netflix is trading at just 15 forward P/E, but the stock does not look too cheap as earnings estimates will likely move lower in the upcoming weeks. 

Netflix Falls Amid Broad Sell-Off In Tech

Shares of Netflix gained downside momentum together with other tech stocks after the U.S. reported that Inflation Rate increased by 8.6% year-over-year in May. Analysts expected that Inflation Rate would grow by 8.3%.

The high Inflation Rate is a bearish catalyst for Netflix stock for several reasons. First, the Fed will be forced to raise the rate aggressively in order to curb inflation. This is bearish for tech stocks in general.

Second, Netflix may face additional problems as consumers analyze their budgets amid high inflation and cut “unnecessary” subscriptions.

What’s Next For Netflix Stock?

Analyst estimates for Netflix have been moving lower after the release of a disappointing quarterly report in April. Currently, the company is expected to report earnings of $10.91 per share in 2022 and $11.97 per share in 2023, so the stock is trading at 15 forward P/E.

While such valuation levels may look cheap for Netflix, traders should keep in mind that the company’s growth is slowing down. In addition, the situation in the economy is worse than previously expected, which could hurt Netflix’ financial performance.

In this light, it remains to be seen whether speculative traders will rush to buy Netflix stock at current levels. This year, the stock touched lows near the $163 level, and a broad sell-off in the general market may push Netflix back to these levels.

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