Netlfix (NFLX) peaking: what's the risk of buying the stock now?

2:47 pm ET, 23 May 2018

As the Netflix (NASDAQ: NFLX) stock is peaking today, trading at $344 and reaching an all-time high, there are some key risks that you as an investor should be aware of that we're laying out in this Bite. 

As technology improves, more consumers will be able to download content quickly via the web and play it on their televisions or alternative devices. The cost of licensing content will rise as competitors emerge and bid for content that Netflix desires. 

The move to more original content adds costs and risks. 

Netflix's expansion outside the U.S. could remain unprofitable and drag on cash flow due to different tastes and lower video consumption. The cost to deliver content could increase and the need to pay for fast-lane network access could drag on margins.  Network and channel-specific video services could steal subscribers and limit subscriber growth. 

The increased price rates in the U.S. could limit growth and increase churn when the grandfathering period expires.

The forward P/E ratio for Netflix is high,  above 70.  This is moderately high for a company that has a profit margin of 5.26%.   

Over the last year, NFLX has returned +115.19%. This return is higher than CATV Systems sector (-0.21%), Services industry (12.83%), and S&P 500 (13.59%) returns.

Netflix (NFLX): Has The Stock Peaked?

11:56 am ET, 11 Apr 2018

The Netflix stock (NASDAQ: NFLX) spiked around 4% today in mid-day trading. The stock witnessed a 60% year-to-date spike (visit Finstead and type “NFLX YTD return” to get the latest return).

What should you know about this stock?

The company’s exciting original content makes the stock more attractive.   Since Netflix is capable of delivering outstanding services in the competitive market, investors are getting more optimistic about sustaining growth.

Its resilience and the lack of dependency on trade agreements have made the stock even more appealing to investors.  Despite the prospect of a trade war between the US and China, the stock has remained unaffected.

Netflix outperformed its rivals such as Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL).

The growth is evident from the rising number of subscribers throughout the world. It is a cheaper substitute for TV.  Netflix consistently recorded a 6% average growth rate after hitting more than 100 Million paid subscribers in the second quarter of last year.

The Netflix stock surpassed previous quarter's EPS with a remarkable 650%  margin growth. The company recorded a 320% average year-over-year EPS growth since the fourth quarter of 2016, which is a sharp contrast to -15% margin decline from the third quarter of 2016. The margin expansion is a clear indication that the investment in expanding subscriber volume is paying off.

Can the stock sustain the momentum? Per Finstead Research, Netflix has the average price target of $266.

Netflix has a fairly high valuation compared to its peers. Its P/E ratio lags only that of AMZN.

The high Short Share of Float indicates potential volatility in the upcoming days.

FAANG Pullback Inevitable in 2018?

7:09 am ET, 02 Jan 2018

FAANG

As you're entering 2018, you may be wondering which stocks that you own in your portfolio are bound for a 'correction' in 2018.  

The scale of the FAANG rally in 2017  has led some investors to believe that this group has been overdone as an investing theme, especially given signs of overvaluation. 

Facebook, Amazon, and Netflix were up more than 50% over the last 12 months; Apple's gain was over 50%, and Google 'trailed behind' with 30%+ annual stock price growth.

And the FAANG stocks weren’t just market leaders this year; they accounted for a sizable portion of Wall Street’s overall move higher. 

How do the analysts feel about these stocks?  Morgan Stanley said it is still positive on the group, but macro factors could be concerning.  History indicates that returns may moderate their pace and Morgan Stanley analysts question whether growth can be sustained in the upcoming period.  

Apple investors should be especially worried about the $1,000 price tag on the iPhone X that may cut into first-quarter demand.

The group may be less well-insulated from cyclical pressures that many investors anticipate will increase over the next couple of years.  These stocks are tied to the cycle via advertising and consumer spending.

Here is a look-back on Facebook and Amazon stock performance.  Over the last year, FB returned +52.54%. This return is higher than Internet Information Providers sector (42.56%), Technology industry (26.77%), S&P 500 (18.87%) returns.

Over the last year, AMZN returned +52.98%. This return is higher than Catalog & Mail Order Houses sector (20.39%), Services industry (4.74%), S&P 500 (18.87%) returns.

Netflix, Inc. (NFLX) Stock Guide

Updated at: 7:58 am ET, 18 Sep 2020

Before we start: if you're looking for NFLX stock price, you can quickly find it out by visiting Finny and typing "NFLX quote". If you're looking for a quick scoop on NFLX stock (chart, price target, market cap, news and buy or sell analysis), go to Finny and look for "NFLX". You'll get all this info in one place. Or you can just type "NFLX news" to get the latest stock news.

Looking to buy or sell Netflix, Inc. (NFLX)? Interested in getting the full scoop on NFLX, including earnings and dividends, stock forecast, buy or sell analysis and key stats? If so, you came to the right place.

In this NFLX stock guide, we'll address key questions about NFLX, above and beyond what you can find on Yahoo Finance, Zacks, MarketWatch or Morningstar.

Here is what you'll be able to find in this guide:

Earnings and Dividends: earnings, earnings date, dividend rate and dividend yield;
Analysis: Finny Score and buy or sell analysis;
Key Stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio, industry, sector, and number of employees.

And here is the list of questions we'll answer:
1. What are NFLX earnings?
2. NFLX buy or sell? What is NFLX Finny Score?
3. What are the reasons to buy NFLX? Why should I buy NFLX stock?
4. What are the reasons to sell NFLX? Why should I sell NFLX stock?
5. What are NFLX key stats: revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

So let's start. Scroll down to the question that interests you the most.

Earnings and Dividends

1. What are NFLX earnings?

NFLX trailing 12-month earnings per share (EPS) is $5.92.

Analysis

2. NFLX buy or sell? What is NFLX Finny Score?

#{finnyScore:43}Our quantitative analysis shows 3 reasons to buy and 4 reasons to sell NFLX, resulting in Finny Score of 43.

3. What are the reasons to buy NFLX? Why should I buy NFLX stock?

Here are the reasons to buy NFLX stock:

  • Netflix's internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years.
  • TV Everywhere from traditional pay-TV distributors has been slow to roll out and largely replicates the linear experience, gifting Netflix with an extended window to remain the leading provider of Internet television in the U.S.
  • Looking at Netflix’s strong history of year-over-year revenue and earnings growth, we believe that its strategic initiatives such as international expansion and focus on original content should help sustain the momentum ahead.
  • Netflix is now focusing on producing more quality original content than ever to increase as well as broadly diversify its subscriber base. To establish itself as a leading content provider, the company is taking a number of initiatives, including the development of more kids- and family-oriented content. The CFO David Wells commented that the company plans to make 50% of its total content original over the next few years.
  • Netflix’s applications for both Android and Apple devices have helped it expand its market share. Netflix subscribers can stream any movie or show of their choice through these devices. Comcast has made the Netflix app available on its X1 platform, featuring voice controls and search results, among other things.
  • NFLX quarterly revenue growth was 24.90%, higher than the industry and sector average revenue growth (0.60% and 0.78%, respectively). See NFLX revenue growth chart.
  • NFLX profitability is improving. The YoY profit margin change was 2.67 percentage points. See NFLX profitability chart.
  • NFLX cash to debt ratio is 0.40, higher than the average industry (0.10) and sector (0.13) cash to debt ratio. See NFLX cash to debt chart.

4. What are the reasons to sell NFLX? Why should I sell NFLX stock?

Let's look at the reasons to sell NFLX stock (i.e., the bear case):

  • The expansion into international markets is unprofitable today, and any material level of profitability may take five years or longer to achieve.
  • The election of Donald Trump may change the FCC's willingness to implement strict net neutrality rules in the U.S., thus allowing broadband providers to charge Netflix for access.
  • Netflix may be overpaying for content due to the presence of Amazon and Hulu. The entry of new competitors may exacerbate the rising cost of content.
  • Netflix primarily faces competition from bellwethers like Amazon Prime Instant Video, Hulu and Time Warner’s HBO, which also offer online streaming services. Given the scope for growth in the market, all the players are ramping up their efforts to boost their subscriber base. Amazon is also undertaking a number of initiatives to enhance its content portfolio and even venturing into original programming, which might pose some challenges for Netflix.
  • International expansion and content additions resulted in cost escalations in the form of technology investments and marketing expenses. However, the recent expansions will further dent the company’s profitability in the near term. Moreover, it is also expecting a significant amount of debt, which should add to interest expense.
  • Cash flow burn is here to stay. The company said it expects free cash flow to be negative for years to come as it diverts more capital into producing content.
  • NFLX Price/Book ratio is 26.29, which is high compared to its industry peers’ P/B ratios. See NFLX forward Price/Book ratio chart.
  • NFLX Price/Sales ratio is 10.85, which is high compared to its industry peers’ P/S ratios. See NFLX forward Price/Sales ratio chart.
  • NFLX PEG ratio (P/E adjusted for growth) is 2.42, which is high compared to its industry peers’ PEG ratios. See NFLX PEG chart.
  • NFLX Enterprise Value/Revenue multiple is 11.31, which is high compared to its industry peers’ Enterprise Value/Revenue multiples. See NFLX Enterprise Value/Revenue chart.

Key Stats

5. What are NFLX key stats : revenue, market cap, revenue growth, profit margin, P/E ratio, P/B ratio industry, sector, and number of employees?

Let's look at the key statistics for NFLX:

Metrics NFLX
Price $482.71
Average Price Target / Upside N/A
Average Analyst Rating N/A
Forward Dividend Yield 0.00%
Industry Media - Diversified
Sector Consumer Cyclical
Number of Employees 7,100
Market Cap $245.45B
Forward P/E Ratio 63.24
Price/Book Ratio 10.85
Revenue (TTM) $22.63B
YoY Quarterly Revenue Growth 24.90%
Profit Margin 11.85%

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