I am bullish on Netflix (NFLX) as it has a strong competitive position, a promising long-term growth runway, and attractive valuation multiples relative to the company’s trading history.
On top of that, Wall Street analysts are generally bullish on the stock, and the average price target implies good upside over the next year.
Netflix is the world’s leading entertainment service and offers streaming services in over 190 countries. It offers both licensed and original content, including television shows, movies, documentaries, mobile games, and more in various languages.
With its range of plans and vast offerings, Netflix remains ahead of other content streaming services and has continued to grow at a rapid pace. People spending more time at home during COVID-19 pandemic has furthered this, with the platform currently boasting over 214 million paid members.
Strengths
Netflix has many strengths that make it an excellent investment pick. Since it recognized the importance of streaming early on, it has the advantage of being the biggest player in the market.
Additionally, instead of simply relying on outside content, Netflix has invested in original creations. This has clearly paid off, with successful TV shows such as Bridgerton, Squid Game, and Stranger Things, and successful movies like Bird Box. By building its catalog, it offers viewers unique content and hits that continue to attract more subscribers.
In addition to this, Netflix has expanded to the international market. Instead of being limited to English-speaking countries, it has a global audience. It has catered to this audience by providing content in other languages, such as Squid Game in Korean and Money Heist in Spanish.
Recent Results
In Q3 of 2021, Netflix grew its revenue to $7.5 billion. This was 16% more than its revenue in Q3 of 2020.
While operating income rose by 33%, it also added 4.4 million paid net adds and ended Q3 with an astounding 214 million paid memberships.
Since revenue growth in Q3 of 2021 was primarily due to a 9% increase in average paid streaming memberships and a 7% increase in Average Revenue per Membership (ARM), this is expected to increase further in the upcoming months and years.
Valuation Metrics
NFLX stock looks attractively priced at the moment. Its EV/EBITDA ratio is discounted relative to its history at 33 times compared to its historical average of 48.4 times.
Furthermore, its price-to-normalized earnings ratio is 45.9 times compared to its historic average of 81.6 times.
Analysts expect the company to see revenue, EBITDA, and normalized earnings-per-share growth in 2022 of 14.5%, 24.4%, and 22.5%, respectively.
Wall Street’s Take
According to Wall Street analysts, NFLX earns a Moderate Buy analyst consensus based on 23 Buy ratings, four Hold ratings, and three Sell ratings in the past three months.
The average Netflix price target of $675.54 puts the upside potential at 26.1%.
Summary and Conclusions
Netflix enjoys a leading position in the increasingly competitive and high-growth streaming industry. Thanks to its strong brand, large content library, and large viewership data, it is able to invest in creating increasingly fresh and appealing content to retain members and attract new subscribers.
Furthermore, Wall Street analysts are generally bullish on the stock and the average price target implies decent upside over the next year. Last, but not least, its valuation multiples stand at a steep discount to its historical averages even as growth rates remain pretty strong.
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