No, I'm Not Selling You My Netflix Stock Today

It seems so obvious now. Netflix (NASDAQ: NFLX) shares opened lower on Wednesday after the company posted disappointing financial results. The top dog among premium video streaming services exceeded its summertime forecast for the third quarter, but guidance remains the dagger gift that keeps on shivving.

All you had to do was pay attention. Like a scripted piece on the platform with layered foreshadowing, the signs were there for all to see:

• Netflix laid off 6% of its workforce earlier this month.
• A few key executives -- including its chief content officer and head of film -- left in the aftermath of the workforce reductions.
• Netflix stock had initially declined following each of its five previous quarterly reports.

Image source: Getty Images.

The sixth time's the harm

A quick overview of the results is in order. Heading into the third quarter, Netflix's own outlook back in July called for an 11.7% increase in revenue. It would've been its weakest year-over-year growth in three years, which naturally played a part in the stock taking a step back after that financial report.

Revenue would climb 11.8% to $12.87 billion, a sliver ahead of its own guidance. The bottom line was even better. Earnings rose 44% to $0.87 per share. It was only targeting a 36% increase to $0.82 per share. There were some asterisks. Revenue would have risen just 11% on a foreign exchange-neutral basis. The improvement in margin was partly due to the timing of big-ticket expenses.

It was ultimately a beat on both ends of the third quarter's income statement, but Green Day was right about waking up when September ends. A beat without a raise is like lowering the roof on your convertible car as you're driving into a stormy horizon. The only thing that matters behind the wheel is where you're going, and Netflix's fourth-quarter read isn't promising.

Netflix now sees revenue for the new quarter rising 11.5% to $13.4 billion. It will obviously be its worst showing in more than three years. It would also be the fourth consecutive quarter of decelerating year-over-year growth. The bottom line isn't the rock star it was in the third quarter. With expense tailwinds becoming headwinds, net income is expected to rise just 15% to $0.67 a share. Analysts were holding out for a profit of $0.73 a share.

Nobody wants this

Netflix stock hit a two-year low on Wednesday. The shares have shed almost half of their value over the past year. Growth investors have moved on. Value investors are still wondering if this is a classic value trap.

I'm still holding. I learned my lesson a long time ago. I've owned Netflix for 24 years. I bought it when it was a broken IPO, months after its springtime 2002 market debut. I made the mistake of selling some of my shares on the upticks, celebrating bunt singles when I should've kept swinging for the fences. I made the mistake of selling some of my shares on downticks, only to see Netflix recover from at least two drawdowns of roughly 80% in 2011 and 2022. I am down to my last 1% of my original stake, and not just as a cruel reminder of how much money I would have if I hadn't surrendered the other 99% over the past two dozen years.

Netflix isn't as bad today as the stock chart suggests. As odd as this may sound for this global business that now generates more than half of its revenue internationally, each of its four regions posted double-digit revenue growth in the third quarter. You don't see that kind of symmetry often with a top-line increase just shy of 12%. The stock is now historically cheap. At this morning's open of $64.13, you're buying Netflix for less than 17 times forward earnings.

Cutting ties with the biggest percentage gainer I've ever had doesn't feel right. It's like putting the roof back on my convertible when sunnier skies are on the horizon. Yes, Netflix. I'm still watching.

Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.