Is Netflix’s Bad Day A Sign Of Things To Come For Tech Industry?

If you own Netflix stock, Tuesday (July 19) was not a good day for you.

And Netflix’s bad day was a bad day for the Nasdaq Composite and S&P 500 as well, according to The Wall Street Journal, pushing both of those indexes lower as the Dow climbed to another record high.

A disappointing quarterly earnings report released after the markets closed on Monday caused Netflix’s stock to fall $12.97 per share, or 13 percent, in trading on Tuesday, the single biggest plunge for the company’s stock since 2014.

The problem?

Even though it still reported a net income of $41 million last quarter, Netflix reported its poorest subscriber expansion numbers in three years on Monday as well, which investors are reading as a sign of slower growth for the online streaming service, according to The Verge.

Netflix added 1.54 million subscribers last quarter, including just 160,000 in the U.S. — well below its own projections of 2.5 million new customers. The company’s also been receiving some bad publicity of late after a controversial change to its pricing plan that appears to have alienated and maybe even scared off some of its customers.

Netflix chalked the poor numbers up to “churn” and poor press coverage of the announcement.

“Our global member forecast for Q2 was 2.5M, and we came in at 1.7M. Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to un­grandfather longer-tenured members, and remained elevated through the quarter,” Netflix wrote in an earnings statement. “We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering.”

After being an absolute tech darling in 2015 — Netflix more than doubled in value in 2015 — the online video streaming service has been taking some tough blows in the markets of late.

In a little more than a couple of months, Netflix shares dropped from a high of $130.93 in early December to a low of $82.79 on Feb. 5, 2016.

It’s been a turbulent last few months in the markets in general, with China concerns, the first Federal Reserve interest rate hike in 10 years in December and the Brexit vote all serving to buffet an already rattled market.

But is Netflix’s bad day (and bad last few months) more of a Netflix problem or a deeper industry-wide problem for the once-ballyhooed tech stock market?

That’s really a difficult question to answer definitively because of unprecedented market volatility in recent months (including the worst start of the year in stock market history).

But the signs increasingly point more toward a Netflix problem than a broader shift toward tech stock volatility.

Apple, Amazon, Facebook, Google, Yahoo and all the big tech stocks all dipped at the beginning of the year — as did most stocks — but most of those brands have done a good job recovering that value and continuing to grow.

Facebook sunk to $94.16 on Jan. 21 but rose 1.04 percent to close near an all-time high of $120.61 on Tuesday in anticipation of a strong earnings report.

Apple’s had its own growth problems of late, with declining iPhone sales and a smartwatch that didn’t exactly blow consumers away. Its stock dipped to $93.42 on Jan. 27 and dipped even lower to $90.34 on May 12. But even with a disappointing earnings report of its own recently, the company is still keeping pace with the market. Its stock closed at $99.87 on Tuesday and rose to almost $100 a share in after-hours trading.

Amazon, probably the only company that had a better 2015 in the stock market than Netflix, is riding high on the success of its latest Prime Day event, launching into some lucrative new markets and poised to become the largest fashion apparel retailer by 2017. Its stock closed at $739.95 on Tuesday, after bottoming out at $482.07 on Feb. 9.

Even Microsoft’s shares rose in after-hours trading late on Tuesday on the heels of a better-than-expected earnings report, fueled largely by the surprise success of its cloud product, Azure, which grew 102 percent in its quarterly earnings report.

The market is going to have a good day with Microsoft on Wednesday.

Netflix stock seems to be the outlier of the big tech stocks in the past few months, as its continual downward trend could suggest that the problem with Netflix stock really is a Netflix problem.

Then again, as Dan Niles, founder of AlphaOne Capital Partners, told USA Today back in January in an article entitled “Tech stocks lose their market-darling status,” maybe Netflix’s sudden drop in value might be the perfect opportunity to buy back in on the online streaming giant.

“When money is cheap, people do stupid things, like invest in tech in 1999 or the housing market in 2007,” Niles said.

Will we be adding Netflix to that list in 2016?