After a year of ups and downs, the Netflix (NASDAQ: NFLX) stock price ended 9.23% higher yesterday, January 10, than it was on January 12, 2021. However, a recent pull-back has gripped the stock ever since it hit its 2021 peak on November 17. On top of that, the recent weakness in the tech sector has been an added pressure on the stock.
However, this dip can be considered as a good buying opportunity, as believed by 23 of the 30 Wall Street analysts covering the stock. Nonetheless, due to 4 of the analysts having a Hold rating and 3 of them having a Sell rating on Netflix, the stock is currently a Moderate Buy on average.
Major Plus PointsThe streaming pioneer has managed to maintain its dominant position in the video-streaming domain, even with the entry of strong new rivals. A compelling content portfolio and focus on content localization is strongly taking on services like Amazon Prime Video (AMZN), Disney+ (DIS), and Apple TV+ (AAPL).
Interestingly, Netflix also seems to have its eyes set on the technological future — the metaverse. Last year, the company hired Mike Verdu as its Vice-President of Game Development. This was important because Verdu is a well-known gaming innovator who worked earlier in the Electronic Arts and Facebook’s Oculus division. He had a major hand in bringing metaverse to the forefront.
As video gaming is expected to be a big attraction of the metaverse, this hiring move was highlighted in the tech and media space; especially after acquiring various small video-game developers. These subtle steps lead me to believe that Netflix is laying the foundation to compete with the top metaverse stocks.
Expert Weighs InMonness Crespi Hardt analyst Brian White believes that the unexpectedly large volume of original content released by Netflix in 4Q21 should encourage strong user engagement in its upcoming earnings. Moreover, the carry-over impact of the Squid Game, which was launched in 3Q21, is also expected to be a positive. Furthermore, the acquisition announcement of visual effects company Scanline VFX, and the launch of its mobile gaming service in the 4Q21 gives White more hope.
For the fourth quarter, White expects revenues of $7.742 billion, which translates to 17% year-over-year growth. His projection for earnings per share stands at $0.90.
The analyst reiterated a Buy rating on Netflix with a price target of $730. He was not much concerned about the inconsistent subscriber growth and is encouraged by the higher number of consumers added to the platform throughout the last year, strong content, and immense room for growth in the forthcoming years.
The Netflix stock projections given by the Wall Street analyst consensus suggest an average price of $671.79.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Download the TipRanks mobile app now
Read full Disclaimer & Disclosure
Netflix (NASDAQ: NFLX) is a subscription-based streaming service through which members can view TV shows, documentaries, and movies on any Internet-connected device.
The company also offers its DVD-by-mail service in the United States. The company was founded in 1997 and is headquartered in Los Gatos, California.
I am bearish on NFLX stock. Strong fundamentals come with a very elevated valuation. The stock’s underperformance in the past year may continue in 2022, as any miss in global subscriber growth should raise concerns about both profitability and the rich stock price.
Netflix: The Bullish SideInvestors have several reasons to be optimistic about NFLX stock. Netflix’s operating margin is expanding, a very positive sign. In FY 2018, 2919 and 2020, the operating margin was 10.2%, 12.9% and 18.3%, respectively. On a TTM basis, it stands at 22.8%
The price-to-book-value ratio of 16 is close to a five-year low of 15.6. The P/E ratio of 48.8 is also a five-year low.
Netflix has shown predictable revenue and earnings growth. Growth in key metrics has been a reason why the stock price has risen from $142.13 on February 1, 2017,just under $540 today.
On top of that, NFLX stock has a 52-week range of $478.54–$700.99. Patient and not greedy, but lucky investors selling the stock near the 52-week high would have avoided this recent decline off its highs.
The 10-year average growth of revenue, operating income, net income, and EPS is 27.73%, 32.37%, 32.88%, and 30.55% respectively.
The price-to-sales ratio of 9.7 is close to a one-year low of 8.07. The Altman Z-score of 7 is strong too.
Netflix: The Bearish SideNetflix has a three-year consecutive trend of decelerating revenue growth. In FY 2017, the company reported revenue growth of 199.41% to $558.93 million, which declined to 116.71%, 54.13%, and 47.91% in FY 2018, 2019, and 2019 respectively.
The company has one of the worst D/E ratios in the entertainment industry. The D/E ratio of 0.97 is considered too high.
Compared to an average industry P/E ratio of 23.76, Netflix is more expensive than its industry peers.
The forward P/E ratio of 47.2 also indicates an expensive valuation of NFLX stock.
Notably, the Beneish M-Score of -1.73 is higher than -1.78, which implies that the company might have manipulated its financial results.
Q3 2021 EarningsIn Q3 2021, revenue grew 16% year-over-year to $7.5 billion, a beat by $161,410. Normalized EPS of $3.19 was a beat by $0.63. NFLX stock earnings have been strong in 2021 compared to 2020.
Global Streaming Paid memberships had year-over-year growth of 9.4%, and the forecast for Q4 2021 is 9%.
Wall Street’s TakeTurning to Wall Street Netflix has a Moderate Buy rating based on 23 Buys, four Holds, and three Sells. The average Netflix price target of $675.54 represents 25.9% upside potential.
Bottom LineNetflix has strong fundamentals, and improving profitability margins, but it also has a lofty valuation.
It has an erratic free cash flow trend, and the operating cash flow trend is non-stable. In 2022, growth stocks such as Netflix may be prone to weak performances.
Download the TipRanks mobile app now
Read full Disclaimer & Disclosure
Netflix (NFLX) shares have been on the backfoot recently; since mid-November, the stock has pulled back ~22%.
The drop comes alongside several concerning factors, as noted by Stifel’s 5-star analyst Scott Devitt. The analyst counts: “(1) weakening app engagement beginning in November; (2) the prospect of slower subscriber growth; and (3) less profitable growth in international markets,” which have likely “tempered expectations” and placed negative pressure on shares.
Nevertheless, with the release of high-profile original content and the progress made on its video games and visual effects initiatives, the analyst believes the company “executed well on its strategy in Q4.”
However, that can’t gloss over Apptopia engagement data which suggests a more “modest subscriber addition cadence” in Q4 than Devitt had previously expected.
As of December 31st, MAUs (monthly active users) were tracking at ~217.6 million, roughly 6.3 million above the figures at the end of Q3, but ~2.2 million below management's guidance for 8.5 million net adds in the quarter.
This foreshadows less potential upside in Q4’s results, and as such, Devitt reduced his Q4 sub add estimate from 10.1 million to a “consensus-matching” 8.6 million, which is also about the same as management's 8.5 million guidance.
There are other factors to note regarding the weakened sentiment, including the macro related trend of sector rotation away from tech/growth and investors showing more interest in streaming competitors and the “utility of alternatives.”
Generally speaking, Devitt thinks that in contrast to the recent focus on sub add growth and Netflix’ leadership status, the NFLX narrative is changing and includes other elements. These number: “(1) steady growth in lower ARPPU international markets coupled with broad utilization of pricing power as an offset; (2) content-spend leverage as Originals become dominant in the content mix; (3) steady flip to free cash flow generation; and (4) engagement-enhancing product verticals which support pricing power.”
Management's ability to make good on these “developing pieces” of the story, says the 5-star analyst, will partially determine further share price appreciation.
So, bottom line, what does it all mean for investors? Devitt reiterated a Buy rating on Netflix shares, although his price target gets a trim; the figure drops from $690 to $660, suggesting shares have room for 22% growth over the coming months. (To watch Devitt's track record, click here)
Turning now to other analysts’ coverage which shows that Netflix retains most – though not all - of the Street’s support; based on 23 Buys, vs. 4 Holds and 3 Sells, the stock carries a Moderate Buy consensus rating. The average target is just above Devitt’s; at $675.54, the figure suggests one-year returns of ~25%. (See Netflix stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.