Why Cineplex Stock Is a Buy as Netflix Slips

Netflix stock disappointed investors with results that fell below estimates, and with Barbenheimer due this weekend, perhaps Cineplex stock could be the winner we need.

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Shares of Netflix (NASDAQ:NFLX) stock slumped this week, as the heavyweight streamer reported second-quarter sales and third-quarter revenue projections missed consensus estimates.

The stock dropped 9% in early trading, only to fall another 8% after the earnings release. While analysts believe the drop is overdone, with the company pointing to more growth in the future, there could be a sign to invest elsewhere.

Netflix stock falls below estimates

There were several notes that analysts zeroed in on during the earnings report, all of which pointed to the potential for future growth. Yet that doesn’t exactly help when looking at the current growth for the streaming service.

Netflix stock said future growth in revenue will come from pricing, volume, and new revenue streams such as advertising. However, this will take time to come online. The company also quietly removed its lowest-cost ad-free streaming plan in the United States, and ad revenue is also not expected to be a big contributor for the year.

Overall, the stock was below across the board for estimates. Revenue came in at US$8.16 billion, below the US$8.18 billion expected. It wasn’t all bad, though, with Netflix stock adding 5.89 million subscribers in the quarter — well ahead of 2.1 million in estimates. This came largely from the password-sharing crackdown, so it may not be a repeatable moment for the company.

Still, the company did manage to increase its full-year cash flow projection to US$3.5 billion from US$3 billion, so who knows what the future holds?

Investors going elsewhere?

It could very well be that after years of restrictions and production finally back up and running at full tilt, consumers are heading back to the movies and cutting back on streaming time. There are several influences related to the pandemic in this case.

Streamers like Netflix stock saw a surge in use with stay-at-home orders in effect, all while theatres were locked up tight. However, the growth from these streaming services dropped as some decided to cut back their spending with inflation and interest rates rising. Instead, they’re choosing to save that cash to perhaps go to the movies in real life.

And it’s leading to growth for Canadian stock Cineplex (TSX:CGX).

Cineplex stock growing from Barbenheimer?

If you’re not already aware (and I’m not sure how you’ve managed to keep away) but new films Barbie and Oppenheimer are being released on July 21 (as in, tomorrow). These films are expected to create incredible sales around the world, with many choosing to see both films on the day of release.

In fact, Barbie has already beaten out James Cameron’s Avatar: The Way of Water to be the highest pre-ticket sales so far in 2023. The film is now expected to earn anywhere between US$90 million and US$125 million in North America on opening weekend. Oppenheimer is expected to achieve between US$40 million and US$50 million.

As for Cineplex stock, these films have brought box office revenues near pre-pandemic levels. After missing the last earnings report, the stock still has achieved growth in the last few quarters. Shares are still down by 19% in the last year, with the stock remaining valuable at enterprise value over earnings before interest and taxes at just 7.08.

Bottom line

Summer is here, and Cineplex stock could finally see the momentum we saw before the pandemic. And that could feed directly into its share price. With June box office revenues reaching $56 million, this totalled a whopping 98% of June 2019 revenues. With Canadians looking to cut back, and making a night out of their movie nights, perhaps this stock is a better growth story than Netflix stock — especially at these levels.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Cineplex and Netflix. The Motley Fool has a disclosure policy.

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