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Netflix Stock Recovers with a Big New Buyer
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Netflix Stock Recovers with a Big New Buyer

Lately, things haven’t been going so well for one of the greatest streaming platforms around, Netflix (NFLX). Its stock has been hounded by some of its recent decisions and subscribers fleeing the platform. However, the recent reversals in share price have created what some believe to be a buying opportunity, and they’re buying accordingly. There’s a lot to like about Netflix right now, and I’m bullish on one of the best sources for online entertainment around.

Netflix’s year in share prices was doing pretty well until about November. The end of 2021 going into 2022 has not been kind to Netflix. In fact, from late January until mid-August, the company spent most of its time in the $450-$550 range. Much of that was spent around $500.

Investors expected big things from Netflix going into fall, and the share price reflected as much. The share price climbed until early November, where Netflix challenged $700 per share. It held that level for the rest of the month’s first half, and that’s when the bottom fell out. In the time between November 16 and yesterday, the company lost nearly half its value, ultimately reaching a low not seen in almost two years.

Today, however, brought a note of recovery. A pretty solid one as well; the company is currently up about 9%. The news that brought such life to Netflix was a huge buy from Pershing Square. William Ackman’s hedge fund management company picked up 3.1 million shares of Netflix essentially because of the massive drop it sustained. Pershing Square regarded the plunge as an opportunity to buy in, and buy-in it most certainly did.

Attractively Priced Leader in a Growing Market

Pershing Square has an excellent point here. The recent catastrophic plunge Netflix underwent in the last three months has made for an excellent opportunity to buy. The company is currently trading not too far off its lowest price targets, let alone its consensus targets.

At the end of the day, Netflix is still one of the leaders in streaming video. There’s a reason it’s considered part of the “Big Three,” alongside Hulu and Amazon (AMZN) Prime Video. It’s been around since the earliest days of streaming video, back when Netflix was still best known for sending DVDs through the mail.

Indeed, Netflix is increasingly a part of the future of entertainment. Its global content budget, as of November 2021, will be split between licensing current programs and producing new ones. With a budget of $18.92 billion, that should mean plenty of new content coming viewers’ way. Netflix also recently augmented the range of devices that work with its service. Google’s Pixel phones are now able to receive Netflix HD and HDR10 video.

It’s not all good news for Netflix, however. The recent price hikes have left a bad taste in subscribers’ mouths. Multiple jumps have struck over just the last seven years. Some of that content isn’t sitting well, either; remember the controversy over the release of “Cuties”? Further, Netflix is having trouble getting traction in India.

Back in 2018, CEO Reed Hastings sounded upbeat as the company looked to take advantage of a growing crop of internet users in India. Meanwhile, an investor call last week showed that Netflix was growing well in pretty much every area but India. In India, Disney (DIS) Hotstar and, once again, Amazon Prime Video prove bigger draws than Netflix.

Netflix’s dividend history, or distinct lack thereof, can’t be helping it either. No doubt investors are eager to get a slice of that growing streaming pie, but Netflix has a serious problem. It needs to constantly reinvest in new content or run the risk of losing customers.

There’s a term in streaming video markets called “churn”; it describes the number of subscribers who leave a service. Churn in the streaming video market is up around 30%, noted a Deloitte study, and in some services and markets, it’s higher still.

Wall Street’s Take

Turning to Wall Street, Netflix has a Moderate Buy consensus rating. That’s based on 16 Buys, 15 Holds, and three Sells assigned in the past three months. The average Netflix price target of $519.25 implies 32.4% upside potential.

Analyst price targets range from a low of $342 per share to a high of $750 per share.

Concluding Views

Netflix has its share of troubles, certainly. It’s taking huge chances to produce new content, and the stuff produced isn’t always a winner. However, it’s still one of the biggest sources around when it comes to streaming media. For those who want to watch content online, it’s still a go-to solution.

As studios call their programs home to their own branded services—ViacomCBS (VIAC) recently put 15 old series on its Pluto TV app, from “Taxi” to “The Brady Bunch”—the available pool for Netflix to draw from declines. This means a heavier demand for original content, which Netflix is already producing.

Thankfully, Netflix is in a position to weather this storm, producing its own content. It’s got billions to throw at this problem, and it’s certainly throwing. Bill Ackman’s involvement suggests the market will stay behind Netflix for some time to come. I’d say the Big Three member can hang in there better than most, and that’s why I’m bullish on Netflix.

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