Netflix Inc. (NFLX) shares took a hit on Friday afternoon, dropping by 2.77% to $664.89. This downturn is part of a broader market weakness driven by growing investor anxieties about economic uncertainty and a softening labor market. The streaming giant, particularly sensitive to economic slowdowns and consumer spending fluctuations, finds itself caught in the crossfire of this “risk-off” sentiment sweeping financial markets.
The U.S. economy added just 142,000 nonfarm jobs in August, significantly lower than the projected 160,000. This underwhelming job growth ignited concerns about a slowing labor market. Further amplifying these concerns, wage growth rose by 0.4% month-over-month, creating an environment of uncertainty that disproportionately affected high-growth tech stocks like Netflix.
Netflix’s business model, heavily reliant on subscription revenues, is closely linked to consumer discretionary spending. When economic uncertainty looms or wage growth slows, households tend to re-evaluate non-essential expenses, including streaming services. The August jobs report, signaling weaker labor market conditions, has fueled anxieties that potential job losses or wage stagnation could erode consumer spending power, particularly in entertainment sectors like Netflix.
While wages saw a positive 0.4% month-over-month growth, exceeding expectations, inflationary pressures and the uncertain outlook for job stability could still weigh on discretionary services like Netflix. Historically, periods of economic weakness have coincided with slower subscriber growth or even subscriber churn as consumers seek to cut back on optional expenses.
Investors contemplating whether Netflix is a good buy should consider various factors beyond valuation metrics and price action. These factors include whether the company pays a dividend or engages in stock buyback programs, known as capital allocation programs. While Netflix doesn’t pay dividends, it has other ways to return value to shareholders. Buyback programs, often used as a support for share prices, can serve as a backstop for demand. Based on data from Benzinga Pro, NFLX has a 52-week high of $711.33 and a 52-week low of $344.73.
