Netflix’s Terrible Results Are Crushing Growth Stocks: Is It Time to Buy Shopify?
Shopify (SHOP -3.71%) stock is getting crushed today, and a company in an unrelated industry is to blame. The e-commerce services provider’s share price was down roughly 10.2% as of noon ET Wednesday.
Netflix (NFLX -4.59%) published its first-quarter results after the market closed yesterday, and the results were bad — bad enough to trigger a major marketwide pullback for companies that trade at growth-dependent valuations. As of this writing, the streaming company’s share price was down roughly 37% in the daily session.
Use Netflix’s dismal results to buy Shopify
As the leader in the streaming-video space and a pioneer of the subscription-based business model, Netflix is an influential company when it comes to shaping overall market sentiment. The company’s Q1 report arrived with news that it had lost 200,000 net subscribers in the period, marking the business’s first quarterly loss of subscribers since 2011, and it’s not hard to see why investors are spooked. Netflix had previously guided for 2.5 million net subscriber additions in the first quarter, and some analysts had expected the company to deliver growth that came in significantly above that level.
While headwinds created by Russia’s invasion of Ukraine weren’t reasonably foreseeable when the company last issued subscriber targets, the service’s performance last quarter was still concerning. Netflix has reported that its move to halt service offerings in Russia resulted in the loss of 700,000 subscribers and that it would have otherwise added 500,000 net subscribers last quarter, but that still suggests that the company would have fallen somewhere in the range of 2 million subscribers short of its previous target. If that’s not concerning enough, the streaming giant expects to lose 2 million subscribers in the current quarter.
What does any of this have to do with Shopify? From a business perspective, probably not much. While the market’s appetite for growth-dependent stocks can shift quickly and result in valuation swings, this is likely a short-term pricing catalyst. Shopify’s exposure to the Russian and Ukrainian market is relatively limited, and there’s very little in the way of meaningful overlap when it comes to the subscription video and e-commerce services markets.
Shopify stock now trades down roughly 69% from the high that it hit last November. From a long-term, material standpoint, the business doesn’t look significantly weaker than it did when it was valued at that peak. While valuations for growth-dependent stocks could continue to be volatile in the near term, Shopify remains a category leader in the e-commerce services space, and I think that buying the current dip will benefit long-term investors.