What occurred

Shares of Netflix (NFLX -2.12%) gained 28.6% in July, based on knowledge from S&P World Market Intelligence. After two disappointing earnings reviews and a dismal first half of the 12 months, the digital-video veteran offered a rosier image of its subscriber development tendencies in July’s second-quarter replace. Traders had been fast to embrace that bullish morsel, sparking a number of days of rising share costs.

So what

Netflix’s subscriber rely fell in two straight quarters, together with a lack of 1 million accounts within the second-quarter report. Administration signaled an finish to that downtrend, forecasting the third-quarter determine to hit an all-time excessive of 221.67 million international paid memberships.

On the similar time, the second-quarter outcomes had been a blended bag. Earnings got here in above expectations however income fell barely in need of steering and analyst estimates. Moreover, income development ought to proceed to decelerate within the third quarter because the year-over-year development price drops to roughly 4.7%, down from 8.6% within the second quarter.

However none of that mattered. Traders and analysts are nonetheless laser-focused on Netflix’s subscriber development, so that is the steering goal that wrote the entire firm’s headlines for this quarter.

Now what

That excessive give attention to subscriber development is a mistake. That was a very powerful determine in Netflix’s quarterly reviews, however the firm is shifting gears as we converse. The streaming video service is now paired with a rising portfolio of cell video games. An ad-supported service tier will quickly be accessible for price-sensitive customers.

Netflix can be experimenting with completely different strategies to gather income from individuals utilizing the platform free of charge through shared passwords. Notably, a few of these forward-looking initiatives ought to add to Netflix’s high and backside strains with out lifting the subscriber rely. Subsequently, subscriber development should not be the headline-writing metric anymore.

So the inventory posted a pointy acquire of just about precisely 30% in July, however that increase began from a multiyear-low market backside. Netflix inventory continues to be an incredible cut price, buying and selling 35% decrease in 2022 and 57% beneath November’s all-time highs.

These reductions will solely final till market makers sensible as much as the shifting course of Netflix’s enterprise targets. It might take a couple of quarters earlier than that message actually sinks in, very similar to it took about two years earlier than the shares absolutely recovered from the Qwikster debacle — often known as the beginning of the game-changing digital streaming period.

It seems like historical past is about to repeat itself right here. So why not seize some Netflix inventory whereas it is low-cost?