Welcome back to the Middle School Investor weekly newsletter!
The week that was:
It is said that bulls take the stairs up and bears take the elevator down. It means stock prices go up slowly but can come down very rapidly. This week, Netflix reported their quarterly results. Netflix expected to gain 2 million subscribers, however, they lost 200,000 subscribers, causing the stock price to crash by 35% in one day. Luckily, I only had 2 shares, so my portfolio did not get affected too much. Many people unsubscribed from Netflix because they thought that the monthly fee for watching Netflix is too high. People also had subscribed during Covid but are now unsubscribing because they have to go to work now.
After avoiding it for so long, Netflix will soon start allowing people to pay a lower monthly fee, if they are willing to watch advertisements. That way, people who don't want to spend too much, can pay a lower fee, and Netflix will still get money.
Netflix does not have much room to grow in America, so their growth has to be in Asia. However, in Asia, the prices are usually cheaper, so they would not want to pay $15 a month to watch Netflix. The new ad plan will attract more attention from that area.
There are 222 million Netflix subscribers, but 100 million of them are shared passwords. For example, if there is one Netflix account, and the password is shared by 20 people in 20 different homes, only one of those 20 people have to pay the monthly fee. That causes the subscriber count to increase, but Netflix is making money from only one person, which is not good for their profits. Now, Netflix will no longer allow shared passwords. Each subscriber will have to pay the monthly fee, or take the ad plan.
The lesson learned from this is to not invest too much money in a stock, especially trendy stocks. When a stock is trendy, and too many people invest in it, a little bit of bad news can cause the stock price to crash, like how Netflix did. It is better to keep a diverse and balanced portfolio consisting of companies that make profits, are well-managed, and have good growth at a fair price.
Bought 2 NFLX at $215.00
I added to Netflix because the company is extremely well-managed and innovative. They created the streaming industry that is copied by everybody else. They have successfully handled challenges before.
Bought 2 SBUX at $78.38
Starbucks is going through a tough situation with the unionization problem and the stock price is beaten down.
What I am watching out next week:
Major tech companies like Microsoft, Apple, Facebook, and Amazon report earning next week. The market mood is bearish and any hint of bad news will drive down stocks.