Harding Loevner Overestimated Netflix (NFLX)’s Ability to Sustain its Subscriber Growth Rates

Harding Loevner, an asset management company, released its “Global Equity” second quarter 2022 investor letter. A copy of the same can be downloaded here. In the second quarter, the fund returned -20.63% net of fees compared to a return of -15.53% for the MSCI All Country World Index and a return of -16.05% for the MSCI World Index. Poor stocks among expensive, fast-growing companies that continued to see selling pressure affected the fund’s performance. In addition, please check the fund’s top five holdings to know its best picks in 2022.

Harding Loevner discussed stocks like Netflix, Inc. (NASDAQ:NFLX) in the second quarter investor letter. Headquartered in Los Gatos, California, Netflix, Inc. (NASDAQ:NFLX) is an entertainment services providing company. On September 26, 2022, Netflix, Inc. (NASDAQ:NFLX) stock closed at $224.07 per share. One-month return of Netflix, Inc. (NASDAQ:NFLX) was 1.55% and its shares lost 61.62% of their value over the last 52 weeks. Netflix, Inc. (NASDAQ:NFLX) has a market capitalization of $99.645 billion.

Here is what Harding Loevner specifically said about Netflix, Inc. (NASDAQ:NFLX) in its Q2 2022 investor letter:

“For fellow FAANG member Netflix, Inc. (NASDAQ:NFLX), we overestimated the company’s ability to sustain its subscriber growth rates. It is clear now that management misread the extent of subscriber growth pull-through during the pandemic and the ability of proprietary content growth to entice the 100 million-plus freeloaders who watch Netflix using shared passwords to become paying subscribers. Management believed that it would be able to keep growing its subscriber base and incrementally raise its subscription fees at the same time it introduced an advertising-supported service to win over a new base of lower-paying customers. The company has since realized that it is reaching a saturation point with its full-fee customers, and that much of future growth will need to come from the demand elasticity of the planned cheaper service. But the current share price appears to be discounting poor growth on both fronts. We think that is unreasonable. Even with limited full-price growth, we think the total global subscriber opportunity is twice the current base, even accounting for the plethora of streaming services with which Netflix now competes. Our revised fair value estimate based on these new assumptions remains well above the current share price.”

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Netflix, Inc. (NASDAQ:NFLX) is in 19th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 95 hedge fund portfolios held Netflix, Inc. (NASDAQ:NFLX) at the end of the second quarter which was 109 in the previous quarter.

We discussed Netflix, Inc. (NASDAQ:NFLX) in another article and shared Pershing Square Holdings’ views on the company. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.

Disclosure: None. This article is originally published at Insider Monkey.