Cathie Wood Just Bought Netflix Stock. Should You Follow Her?

Cathie Wood might not have the following that she once did when her flagship fund, ARK Innovation ETF, more than doubled in 2020, but investors still keep track of her moves.

Ark Invest, her investment company, is the rare fund manager that discloses its moves on a daily basis, and Wood has always been open with her thinking and analysis, as she's known primarily for betting on disruptive innovation with stocks like Tesla.

So it was noteworthy that Ark added to its holdings of Netflix (NASDAQ:NFLX) on Wednesday, after the leading streamer delivered a disappointing third-quarter earnings report the night before, showing the company continues to struggle with weak engagement and slowing growth.

Wood's ARK Next Generation Internet ETF (Nasdaq: ARKW) bought 18,783 shares of the stock on Wednesday, or approximately $1.2 million worth of the stock.

Cathie Wood. Image source: Getty Images.

Wood's history with Netflix

Most investors believe that Netflix's days as a disruptor are over, as it has become the incumbent in streaming, with legacy media companies now challenging it. The traditional cable ecosystem is quickly becoming a relic of the past.

Wood seems to have made a similar conclusion. Ark first invested in Netflix in 2016, and Ark accumulated its stake through 2020. As the business seemed to mature in 2021 and then briefly declined in 2022, Ark cut its stake and eventually exited the position by the third quarter of that year.

However, attracted by the company's launch of an advertising tier and its push into live entertainment, Ark reopened its position in Netflix last October.

The recent purchases, especially following the 5% slide on Wednesday, fit with Ark's strategy of buying out-of-favor growth stocks.

Should you follow her into Netflix?

Netflix's problems are real. Total viewing hours on the platform rose just 2% in the first half of the year, and it's losing viewing share to competitors like YouTube. According to Nielsen, its share of the U.S. audience fell from 8.8% to 7.8% in the year ended last July, while other streamers gained ground.

It also just cut its 2026 advertising revenue guidance from $3 billion to $2.7 billion due to technical challenges with its ad product, and the company has pulled back from sharing certain metrics with investors, such as subscriber growth. It also said it would only share engagement data once a year, which could lead to wild swings in the stock when it reports that number.

Overall, Netflix could certainly head lower in the near-term as the trend of slowing growth is set to continue at least into the fourth quarter. However, over the long term, the stock looks like a good bet to recover as the company should find its way back to putting out hits, and it just brought on a new Chief Content Officer, Peter Rice, to help on that front.

Buying the stock here with the price-to-earnings ratio at around 21 should pay off over the long term, though investors shouldn't expect a quick recovery, given the challenges facing the company.

Jeremy Bowman has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.