Inside Netflix’s Newly Added Risk Factor

Netflix (NFLX) runs a subscription-based online video streaming service. Its programming includes original shows and films and content licensed from partners. The California-based company was founded in 1997 and originally operated as a DVD rental business. 

For Q4 2021, Netflix reported a 16% year-over-year increase in revenue to $7.71 billion, slightly missing the consensus estimate of $7.72 billion. It posted EPS of $1.33, which rose from $1.19 in the same quarter the previous year and beat the consensus estimate of $0.82. Netflix added 8.3 million subscribers during the quarter, but Wall Street forecast it would add 8.5 million subscribers. The company expects to add 2.5 million subscribers in Q1 2022.

Netflix ended Q4 with $15.5 billion in gross debt, which it aims to reduce to a range of $10 billion to $15 billion. The company explains that it prioritizes reinvesting cash into its business, including through acquisitions. It aims to return excess cash to shareholders through stock repurchases. Netflix didn’t make any stock repurchases in Q4 because it paid for the Roald Dahl Story acquisition with cash.

With this in mind, we used TipRanks to take a look at the risk factors for Netflix.

Risk Factors

According to the new TipRanks Risk Factors tool, Netflix’s main risk category is Finance and Corporate, representing 26% of the total 31 risks identified for the stock. Tech and Innovation and Production are the next two major risk categories, each accounting for 19% of the total risks. Netflix recently added one new Finance and Corporate risk factor.

The company cautions investors that the acquisitions and investments it makes could adversely impact its costs and financial results. Netflix explains that it acquires other businesses from time to time. It also makes content and technology acquisitions to support its business. The company warns that the acquired assets may be difficult to integrate and it could inherit liabilities. Such acquisitions may also divert management’s attention.

In an updated risk factor, Netflix reminds investors that its charter documents contain provisions that could discourage its takeover and deny shareholders a transaction that they may consider favorable. However, the company explains that it is considering removing some of those restrictive provisions over time. For example, it is considering allowing shareholders to call special meetings. It is also considering removing the classified structure of its board.

The Finance and Corporate risk factor’s sector average is 48%, compared to Netflix’s 26%. Netflix’s stock has declined about 29% over the past 12 months.

Analysts’ Take

Morgan Stanley analyst Benjamin Swinburne maintained a Hold rating with a price target of $450 on Netflix stock following the Q4 report. Swinburne’s new price target suggests 17.08% upside potential.

Consensus among analysts is a Moderate Buy based on 16 Buys, 15 Holds, and 3 Sells. The average Netflix price target of $523.85 implies 36.29% upside potential to current levels.

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