Netflix is on track for its lowest close since January

Reed Hastings, CEO of Netflix

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Reed Hastings, CEO of Netflix
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Hector Vivas/Latin Content/Getty Images

  • Netflix shares were hit hard for a third straught session Friday, and on track for their lowest close since January.
  • The selling has come amid broader stock-market weakness, with the tech-heavy Nasdaq Composite index losing 6.4% since Wednesday, when the social-media network Facebook was sued by Washington, DC.
  • Netflix has tanked 33% since its October peak despite the company posted strong third-quarter earnings and subscriber growth on October 16.
  • Watch Netflix trade live.

Netflix tumbled as much as 7.3% Friday to an intraday low of $241.36 a share, and was on track for its lowest close since January.

The streaming-video giant was under pressure for a third straight session Friday amid broader stock-market weakness that has seen the tech-heavy Nasdaq Composite index shed 6.4% since Facebook was sued on Wednesday by Washington, DC, over its Cambridge Analytica data scandal. On Tuesday evening, Facebook admitted that Netflix and Spotify were able to access Facebook’s user messages.

Netflix shares have slumped more than 30% over the past two and a half months despite the company posting strong third-quarter earnings and subscriber growth on October 16. Bernstein analyst Todd Juenger says the sell-off could be a result of the current environment of rising interest rates, which tends to penalize companies that are short of cash, such as Netflix.

Netflix management warned investors in October that its cash burn will hold steady at $3 billion for the fiscal year 2018, and that next year’s negative free cash flow will be roughly unchanged.

That was “a very similar scenario to when 2018 free cash flow guide was first provided a year ago, coming in worse than consensus on higher programming expense,” Juenger said. “Only last time, the market believed that higher programming spend was a “good guy” (or not as much of a “bad guy”), as it likely fuels future sub adds. This time, the market isn’t buying into that.”

On Thursday, Fed Reserve hiked its key interest rates for the fourth time this year, making debt more expensive. Rising interest rates decrease “the present value of future cash, which is especially impactful for a company like Netflix where positive cash flow is many years into the future,” Juenger said.

Netflix was up 23% this year.

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Markets Insider