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NFLX

Netflix NasdaqGS:NFLX Stock Report

Last Price

US$244.11

Market Cap

US$108.6b

7D

7.7%

1Y

-52.4%

Updated

10 Aug, 2022

Data

Company Financials +
NFLX fundamental analysis
Snowflake Score
Valuation5/6
Future Growth4/6
Past Performance4/6
Financial Health3/6
Dividends0/6

NFLX Stock Overview

Netflix, Inc. provides entertainment services.

Netflix, Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Netflix
Historical stock prices
Current Share PriceUS$244.11
52 Week HighUS$700.99
52 Week LowUS$162.71
Beta1.36
1 Month Change37.65%
3 Month Change40.04%
1 Year Change-52.36%
3 Year Change-18.39%
5 Year Change43.61%
Change since IPO20,303.23%

Recent News & Updates

Aug 09

Netflix's Video Game Push Will Hurt It More

Netflix is entering the video game industry, something that appears uninteresting to most of the company's customers. The company no longer has first-mover advantage, making it more likely for the company to need to spend to compete. Established players are much larger. The company overall has an issue with the size of its capital expenditures, we see the video game industry as moving against this. Netflix's video-game push exacerbates the long-term struggles the company is facing. Netflix, Inc. (NFLX) has dropped by almost 70% over the past year towards a market capitalization of roughly $100 billion. The company has attempted to handle decreased subscriber count by putting pressure on account sharing and, now, moving into new businesses. As we'll see throughout this article, we expect Netflix's video game business to hurt it more. Netflix Video Game Push The company has announced video games as its next market for a while now. The company has announced a substantial expansion in its video game catalog from 24 to 50 games. However, less than 1% of its subscribers are engaged with the video games daily. Unfortunately for Netflix, these low utilization games are part of the same subscription bundle you already pay for. What does that mean? It means a company that's already struggling with capital spending is spending capital to enter a new market completely for free. It's an interesting strategy to say the least. It might have panned out if the launch was a hit, but the data seems to indicate otherwise. More so, it's worth noting that initial subscriber growth is much faster than continued growth. That indicates the current performance is the peak. Another risk we see for the company is that, unlike streaming, there's no first mover advantage with gaming. Other companies have been in the subscription business for a while. The company is already dropping $10s of millions on acquisitions here, while Microsoft (NASDAQ: MSFT) is spending $10s of billions it can comfortably afford. We expect it's unlike for the company to achieve a major foothold here and instead the business will become another source of capital. Netflix Capital Conundrum Netflix's problem, accelerated by the video game push, is the company's capital spending. The company is up to $8.5 billion in net debt and it's barely managing to maintain content spend with competitors. The company's 2022 content spend forecast is roughly $17 billion. Disney's (NYSE: DIS) content spending forecast for 2022 is expected to be $33 billion, Warner Bros. Discovery (NYSE: WBD) at $18 billion, and Amazon (NASDAQ: AMZN) at $12 billion. More so, there's two things worth noting here. First, Disney and Warner Bros. Discovery have been in the business much longer. Their existing production, talent, staffing, etc. are all lower cost because the company has more established networks. Second, the companies have many more sources of revenue from their content (i.e., Disney Cruises). That means they don't need the streaming business to cover all costs. The company's annual revenue are roughly $30 billion, which means it spends around 60% of its revenue on content. Disney's number is 43%, Warner Bros. Discovery is 45%, and ViacomCBS is at 51%. The similarity of the established companies indicates a more sustainable number. It's tough to generate strong profits when 60% of your revenue goes to content alone before any other expenses are factored in from day-to-day operations. Our View At the end of the day, corporate valuation is about reliable profits. The company's revenue growth has stagnated. After modest 1-2% revenue growth from 1Q 2022 to 2Q 2022, the company expects 3Q 2022 revenue to drop 2% QoQ with <5% YoY growth. That's despite a slight increase in subscriber count. The company is struggling to break 220 million subscribers / $30 billion annualized revenue.

Aug 01

Can Netflix Stock Recover After Subscriber Loss? Yes, Buy, Because It Really Is Tech

Netflix is a tech company because the key to its profitability is the massive data analyses it does to generate recommendations. Recommendations alone can power Netflix stock well above current levels. Only a few competitors can match Netflix's prowess, and for the most part, they have other worlds to conquer, leaving Netflix unchallenged in the short-to-medium term. As I write this, Netflix (NFLX) has a market cap of precisely $100.01 billion. At just under $225 per share, it has seen quite a decline from the lofty heights of $700, though it has rebounded nicely off the lows now. The immediate cause of the decline, beyond the Fed rate hikes that are affecting everyone, is the two straight quarters of subscriber losses. Can Netflix rebound from this? I believe it can, because it is a tech company, and it has the data to do it. Tech Vs. Media It's long been one of the most passionate (good-natured, for the most part) debates among both investors and Seeking Alpha analysts whether Netflix can properly be considered a tech company or not. And with the dramatic plunge in the stock, those who have argued "no" and taken the hit for years may justifiably be feeling some vindication. In 2017, Disney's (DIS) announcement that it would be pulling its movies off Netflix for the new Disney+ led Contributor David Trainer to renew the argument, made several times already, that Netflix should be thought of like a media company, not a tech company, and have its stock right-sized accordingly. He urged Netflix investors to cash out of the stock before the decline accelerates. David is one of my favorite authors, so that is the old article I chose. Look more recently, and you will find many, many more such articles, I've never quite agreed, and respectfully, I don't know. Netflix is a tech company. Setting The Criteria Why is Netflix a tech company? I suppose a predicate question would be, what's a tech company? Certainly it's no longer a company that uses computers in its business - that would describe almost every business on the planet at this point. Definitions vary, but most of us feel like we know a tech company when we see one. From an investing perspective, I would argue that a company is "tech" if it meets two key criteria: it has a relatively low marginal cost of service or goods, and it engages in some substantial degree of data analysis. Some might argue a better word for this is "software company," rather than tech. Meeting The Criteria Netflix meets both of these criteria. The standard argument against Netflix's tech status is that content is very expensive to produce, which means that its gross margins are not nearly as cost-free as their marginal costs. Yes, Netflix spends a lot on content, but it doesn't spend any more when 50 million people watch a movie instead of 5 million. That's true of all studios, of course. Does that make every content creator a tech company? Well, if they all keep converting to streaming, maybe one day, but I think not. What sets Netflix apart from other content creators is what it pairs its content with: a world-class, unmatched - in the premium content world, at least - recommendation engine. A World-Class Engine This engine is content data mining at its finest. It analyzes all of Netflix's viewership data - which it has a lot more of than its competitors, since it's been streaming since 2008 and renting DVDs since 1998 - to generate sophisticated models of what in Netflix's catalog each viewer is likely to find enjoyable next, after they finish what they're currently watching. This data mining is key to the bullish case for Netflix, because it illustrates one of the fallacies of modern media analysis I think: that the only way to get new content in front of consumers is to create more of it, sometimes at prohibitive cost. Netflix certainly does create content, as does AMC Networks (AMCX) and Paramount (PARA) and everyone else. But this is not the only way it satisfies viewers. With now some 100 years of filmed entertainment in archives and data banks, there are undoubtedly a lot of things out there we want to watch that we don't know we want to watch. Recommendation engines are a way to put them in front of us to be discovered, and they keep us in Netflix's ecosystem instead of us going to Tubi (FOX) or Peacock (CMCSA) to find our next flick. But consumers as a rule aren't going to sit around scrolling for recommendations for very long before they go find that show they saw advertised during the football game, or rewatch that movie they saw in theaters over the summer. Streamers have a very limited amount of time to convince the viewer to stick around. Recommendations Vs. Productions The significance of this is more profound than some realize. When people come to Netflix for a recommendation about what to watch, instead of to find a piece of content they've already decided on, they are far, far more valuable to Netflix. In fact, there's an argument to be made that if Netflix had to choose between one recommendation inclined customers than five specific content ones, it would be more profitable to take the former. The reason for this is that when consumers want a specific piece of content, Netflix has no leverage in negotiating for that content with the creator - it either pays what they're asking or it loses the consumer revenue it would have brought. This means that over time, for content-seeking customers, Netflix becomes precisely what its bears always feared - a simple pass-through entity between creators and consumers, with little profit for itself. Making the content itself doesn't help much, either. The consumers are probably seeking a specific actor, writer, director, or intellectual property, so substitute them for "creator" and you've got the same dynamic as above. If a movie with Chris Evans is going to be worth $20 million more than a movie without him, Evans would be a fool to charge less than $20 million; and Netflix would be a fool to think in the long-term that sort of movie would ever generate substantial profit. Setting The Tables... And Turning Them But recommendation-seeking customers are very, very different. If a customer will allow Netflix a few minutes of their time to find a movie or TV show to watch, Netflix can take what they know about the customers tastes and essentially have a bidding war amongst all content providers who fit the criteria they're looking for. Whether the customer wants a thriller, a romcom, a mystery drama, sci-fi, crime procedural … there's probably 20 different content providers who can offer it. And Netflix controls the consumer relationship. This means that it can set those content providers bidding against each other for who will offer the content needed for the lowest cost. In this scenario, even Netflix's own Originals are just one more "bidder" with a cost figure attached - provided they haven't been made already. Existing Originals will probably always be first in line. The same applies to content Netflix has already struck third-party deals with. These content pieces have a marginal cost of $0, just like software at a tech company. And the better Netflix gets at selling its recommendation software - or more accurately the results it outputs - the more money it saves on content and the more profit it makes. Massive Data Requirements But this can only be done with data so good that you consistently generate winning recommendations before the customer gives up and leaves. And that's not as easy as it sounds. In fact, when HBO Max (WBD) launched, it openly admitted it was going to try human-generated curation. It just didn't have the data to compete on a pure machine learning level. Aside from Netflix, there's few others who can manage it. While this was dressed up as an artistic choice of returning the human element, all major streamers understand just how recommendations can shift the balance of power in content negotiations. If anyone thought they could match Netflix in this regard, I'd bet my bottom dollar they'd be moving heaven and Earth to try. But more and more of them are admitting that with how large Netflix's head start is and how determined it is to preserve its lead, there's just no point. Netflix itself knows this, and for all its content spending, it also spends not inconsiderable sums trying to tweak its recommendation algorithms. There are a few companies it does need to stay ahead of, including Amazon (AMZN) and YouTube (GOOGL) (GOOG) because they've been doing this nearly as long as Netflix, and so have nearly as much data to work with as they do. Amazon has been selling DVDs in the mail almost as long as Netflix has been renting them, and YouTube actually started streaming a year earlier than Netflix did. Running The Calculations Without detailed viewership data, which Netflix isn't sharing for obvious reasons, we can't really extrapolate how many customers like this currently exist. Instead, I am simply going to calculate, at Netflix's current ARPU minus operating expenses, how many subscribers would have to be pure platform subscribers - i.e., no marginal content costs - to justify a substantial rise from Netflix's current price. Let's set the target at $350, close to where it was before the disastrous (for investors) Q1 earnings print. That would put its market cap at about $145 billion. I will define operating expenses at $2 per month, the same figure I've used for streaming services pretty much ever since Disney+ was announced back in 2017. That leaves $10 per month for Netflix at its current ARPU, or $120 per year, per subscriber. Assuming for now that the market is going to hold at a 20 P/E, $45 billion of market cap requires a run rate of $2.25 billion of profit. Thus, roughly 19 million subscribers seeking recommendations instead of specific content world-wide is enough to get Netflix back to $350. It has over 220 million subscribers and is projecting a return to growth in the third-quarter. While we can't say how many recommendation-seeking customers it has, I believe a 9% share is not a stretch.

Aug 01
Should You Investigate Netflix, Inc. (NASDAQ:NFLX) At US$225?

Should You Investigate Netflix, Inc. (NASDAQ:NFLX) At US$225?

Let's talk about the popular Netflix, Inc. ( NASDAQ:NFLX ). The company's shares received a lot of attention from a...

Jul 26

Netflix: Better Free Cash Flow Is Needed

In the U.S. market during the 2021-2022 TV season, Netflix ranked first in viewing time among broadcast networks. In 2 quarters, subscribers have only dropped by 1.17 million, and by the way, the company expects to recover 1 million already in the next quarter. Netflix's fair value is almost equal to the current price per share, so it might be proper to wait for a further decline before buying. Growth in both revenue and net income has been amazing in recent years, but free cash flow has almost always been negative. Investment thesis Netflix (NFLX) is the most dominant company among streaming service providers, yet to date it has not demonstrated solid free cash flow. The reason for this weakness can be attributed to the huge expenses incurred to enrich its platform with new products, whose revenues are expected in the following years. So far the company has sustained this business model to get more and more subscribers, but now it is time to improve revenue per user. About 100 million users use Netflix without paying directly, and the company is trying to solve this problem through the introduction of new subscription plans. Currently the future of Netflix is very uncertain as is its free cash flow, so for a risk-averse person this may not be a good investment. Until the free cash flow improves I prefer to avoid this company. Netflix's current situation Since the beginning of 2022, Netflix's price per share has reached a low nearly 80% far from its 2021 peak. Investor Bill Ackman himself preferred to close his investment in Netflix with a loss of $400 million rather than believe in a recovery. These are definitely not positive signs for this company, but it must be said that it remains the undisputed leader in its industry. In this section we will analyze the most important current and future aspects related to this company, and whether it is a business in decline or not. Income growth in the last few quarters Netflix Q2 2022 According to the latest shareholder letter issued by Netflix we can see that revenues have always been growing quarter after quarter. Furthermore, comparing Q2 2022 with Q1 2021 we can see that net income increased by $88 million while EPS increased by 23 cents. Unlike previous quarters we can also see that free cash flow has been positive for 2 quarters in a row, which is quite important considering that positive free cash flow has been Netflix's biggest problem. Overall, the growth has not been as rapid as in the past, but it has been there. Finally, on the topic of revenues, it is also worth noting the geographic diversification. Netflix Q2 2022 From U.S and Canada comes 44.5% of total revenues; therefore, Netflix has a good diversification of revenues. In the last two quarters, there has been a lull concerning paid membership in all geographic regions except for Asia-Pacific; I believe that this growing segment can limit the losses obtained by the others in the future as well. Subscribers There has been a lot of talk recently about Netflix's declining subscribers, considered by the market as a clear sign of the end of its growth. Personally, I think this is not entirely correct, especially if we consider a long-term horizon. demandsage.com Subscribers have grown sensationally year after year, particularly after the outbreak of the pandemic. In the 2 years following the pandemic, subscribers increased by 68.2 million, a growth that was certainly abnormal and mainly due to the pandemic forcing people to stay home. After such an event, it was unlikely to expect further rapid growth; therefore, I do not find it surprising that subscribers are now stalled. Netflix Q2 2022 In 2 quarters subscribers have only dropped by 1.17 million, and by the way, the company expects to recover 1 million already in the next quarter. The long-term trend is up, so I don't find the stall of the last 2 quarters so significant. Finally, we must consider that 700,000 Russian paying accounts were lost in the last quarter due to sanctions towards Russia, so not by their own will. Market share Although Netflix is experiencing stalled growth, its market share is still dominant. In the U.S. market, which is the most competitive market, during the 2021-2022 TV season Netflix ranked first in viewing time among broadcast networks. Netflix Q2 2022 In addition, it is also interesting to note how the second place (CBS) and third place (NBC) combined only just manage to surpass Netflix. As of June 2022, Netflix's share of U.S. TV viewing was 7.7%, higher than June 2021's 6.6%. In light of these results it is even more obvious why Netflix has stalled on subscribers, simply because it already has a very high market share and it is very complex to grow it further. The impact of a strong dollar Due to a dollar that appreciated greatly against international currencies Netflix suffered $339 million in foreign exchange losses in Q2 2022, otherwise year-on-year revenues would have grown 13% instead of 9%. The wide geographic diversification of Netflix's revenues had a large impact on this negative result, but it should be considered that this is more unique than rare: it has been 20 years since the dollar reached parity with the euro. As announced by the company this negative exchange rate effect could also affect future revenue growth: Our Q3 revenue growth forecast of 5% translates into 12% year over year revenue growth on a constant currency basis. Similarly, excluding the impact of currency, operating profit growth would be -3% year over year (vs our forecast decline of -29%) and operating margin would be 20% (vs our forecast of 16%). As we have written in the past, over the medium term, we intend to continue to adjust our business as appropriate given the relative strength of the USD to protect our operating margin and try to avoid immediate actions that we believe could be detrimental to the business. Summarizing the entire current position, Netflix has reached a stage where its growth is lower than in the past and its subscribers are struggling to increase. In addition, due to a strong dollar and nearly 60% revenue diversification, growth is negatively affected by foreign exchange losses, but this may be a temporary situation. However, many companies are suffering from a strong dollar, not just Netflix. On the market share side, nevertheless, Netflix dominates U.S. TV viewing share and even increased by 1% in 2022 compared to 2021. The latter is the aspect that I consider the most important. Netflix's core business has burned money so far What I have explained so far represents the ongoing situation of Netflix, which after all is not as dire as we often read. What I will explain in this paragraph instead is a condition that has always plagued Netflix and is the reason why I would not invest in this company currently. Its business model has burned money even though its revenues have grown a lot, and this reduces the soundness of the company. Let me explain further: TIKR Terminal As can be seen from this graph, growth in both revenue and net income has been amazing in recent years, but free cash flow has almost always been negative; thus, even with growing profit the company has been burning cash. The reason for this lies in the nature of Netflix's business model: costs related to new productions or acquired licenses have to be paid in the immediate term in order to earn revenue in the future, but these costs are not accounted for in the same way in the income statement and cash flow statement. In the income statement they are deferred in cost of sales over 5 years usually, being less burdensome, while in the cash flow statement they are accounted for in full in a single year as a cash outflow. Because of this difference, net income is much higher than free cash flow. In addition, it is interesting to note that the only year Netflix had positive free cash flow was precisely when it stopped production because of Covid-19, this was because costs were lower but products already launched continued to attract more and more subscribers. To sum it all up, Netflix has great difficulty generating free cash flow because it has significant cash outflows each year to finance new productions. Moreover, this business model to become profitable in the future assumes that Netflix can consistently generate highly rated TV series each year, which is not easy. This is the main reason why I am not inclined to invest in Netflix at least until its free cash flow improves. However, this situation may not necessarily continue forever; on the contrary, there were some signs of reversal in the last quarterly report. The first signal refers to a positive free cash flow for the 2nd quarter in a row: this is not a great result but there is certainly a glimpse of improvement. The second signal, on the other hand, is a reduction in cash spent on content so as to ease monetary costs in the cash flow statement. The company's expectations in this regard are very interesting:

Shareholder Returns

NFLXUS EntertainmentUS Market
7D7.7%1.0%1.2%
1Y-52.4%-42.3%-11.6%

Return vs Industry: NFLX underperformed the US Entertainment industry which returned -44% over the past year.

Return vs Market: NFLX underperformed the US Market which returned -13.5% over the past year.

Price Volatility

Is NFLX's price volatile compared to industry and market?
NFLX volatility
NFLX Average Weekly Movement8.1%
Entertainment Industry Average Movement10.7%
Market Average Movement7.9%
10% most volatile stocks in US Market17.0%
10% least volatile stocks in US Market3.2%

Stable Share Price: NFLX is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 8% a week.

Volatility Over Time: NFLX's weekly volatility (8%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
199711,300Wilmot Hastingshttps://www.netflix.com

Netflix, Inc. provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices.

Netflix, Inc. Fundamentals Summary

How do Netflix's earnings and revenue compare to its market cap?
NFLX fundamental statistics
Market CapUS$108.56b
Earnings (TTM)US$5.09b
Revenue (TTM)US$31.03b

21.3x

P/E Ratio

3.5x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
NFLX income statement (TTM)
RevenueUS$31.03b
Cost of RevenueUS$18.42b
Gross ProfitUS$12.61b
Other ExpensesUS$7.51b
EarningsUS$5.09b

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)11.46
Gross Margin40.63%
Net Profit Margin16.42%
Debt/Equity Ratio74.6%

How did NFLX perform over the long term?

See historical performance and comparison