Key Highlights
- Cathie Wood’s Ark Invest added $17.2 million in shares of Netflix to its Next Generation Internet ETF.
- The earnings miss and revenue growth slowed down are the reasons behind Netflix’s share price drop.
- Negative market sentiment and high valuation pose challenges for investing in Netflix, but Wood sees potential.
A Strategic Shift?
For Cathie Wood, founder and CEO of Ark Invest, the recent addition of shares to Netflix (NFLX) within her Next Generation Internet ETF (ARKW) marks a strategic shift in her investment strategy. Known for favoring growth stocks like Tesla, Nvidia, and Palantir, Wood’s move into a company that is currently facing market skepticism reflects a broader focus on innovative technologies that could disrupt traditional industries.
The Netflix Purchase: A Bold Move
In the aftermath of a disappointing quarter, where Netflix missed earnings expectations by over a dollar per share and reported an operating margin below 31%, the stock faced significant selling pressure. Despite these challenges, Wood’s Ark Invest managed to add $17.2 million in shares of Netflix to its portfolio. This action highlights her belief in the long-term potential of disruptive technologies, despite short-term market fluctuations.
Market Sentiment and Valuation Concerns
The decision to purchase Netflix comes amidst a backdrop of negative market sentiment. At a price-to-forward earnings ratio around 47, compared to the Nasdaq-100 index’s P/E ratio of approximately 33, Netflix appears overvalued to many investors. However, Wood and her team at Ark Invest are known for their seven-plus-year investment horizon, suggesting they see potential beyond current market conditions.
Despite the challenges, Netflix has shown resilience in recent quarters with a healthy 17% revenue growth in the third quarter, reaching $11.5 billion. This growth is bolstered by the introduction of an ad-driven subscription tier in 2022, which is expected to double its revenue for 2025 compared to 2024, according to Netflix’s co-CEO Greg Peters.
Expert Analysis: A Buy-the-Dip Opportunity?
Industry analysts and experts suggest that Wood’s purchase could be seen as a buy-the-dip opportunity. The Next Generation Internet ETF has demonstrated strong performance, with its share price doubling over the past 52 weeks and gaining about 65% year-to-date since January 1, 2025. While Netflix’s growth may have slowed, Wood’s investment could be viewed as a bet on the long-term disruptive potential of technologies that are transforming traditional industries.
Furthermore, Wood is known for her ability to identify and invest in companies that are at the forefront of innovation, making her recent move into Netflix an intriguing development. As the ETF’s total average return outperforms the S&P 500 by a significant margin over both five-year and three-year periods, it suggests that her strategy could prove beneficial for investors who share her long-term outlook.
Conclusion
A Long-Term Vision
Cathie Wood’s recent purchase of Netflix shares in the Ark Next Generation Internet ETF underscores her commitment to investing in disruptive technologies. While the market is currently skeptical, Wood’s seven-plus-year investment horizon suggests she sees potential beyond current short-term challenges. As technology continues to reshape industries, investors like Wood may continue to seek out companies that are at the forefront of innovation.
