It’s been one of the best stocks to own over the past 20 years…
But it looks like the good times are coming to an end.
On Thursday, Netflix reported second quarter revenue of $12.56 billion, up more than 13% from the same period last year. Net income rose almost 9%, to $3.4 billion.
Both numbers were roughly in line with what analysts expected.
But the forecast told a different story…
Management told investors it expects third quarter revenue growth of just 11.7%. That's the smallest year-on-year increase of any quarter since late 2023.
The market didn't wait around to find out what that meant and shares fell 8% straight after the announcement
That’s on top of the 40% drop over the prior year.
The slide started when Netflix began exploring a bid for Warner Bros… and then the stock kept falling even after Netflix lost that fight as Paramount's offer won out.
And it’s the same old story now…
Netflix can produce decent shows… but nothing with staying power.
Because in 20 years they’ve produced exactly 1 show that has crossed into mainstream culutural relevance - Stranger Things
(You could argue for Squid Game as well, but the jury is still out on that one)
This quarter's biggest debuts were Harlan Coben's "I Will Find You" and the second season of Beef.
Solid shows but not long lasting franchises.
Nothing with the staying power of a Marvel, a Star Wars or a Disney… and certainly nothing that will give them a diversification route beyond streaming.
So while margins are still solid… free cash flow fell 30% partly because of tax payments tied to that failed Warner deal.
Now I've never owned Netflix stock. And based on everything here… I don't see a route back to its old growth rate unless the company lands a genuine content acquisition… something with real franchise weight behind it.
The Warner attempt tells you Netflix's own management already knows this.
They just haven't pulled it off yet…
But until they do, a steady drip of well-reviewed limited series isn't going to change the trajectory.
Oliver