Should you buy Netflix stock?
- 5 months ago
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Netflix reported earnings last week and the stock jumped almost 10%.
A big reason for the rally was that Netflix said it can bring in $3 billion in free cash flow in 2023, almost double last year's figure of 1.6 billion.
Free cash flow is a key metric here because Netflix earnings account for content costs on an amortized basis.
In other words the cost of content gets written off over time. That means earnings are reported much higher than free cash flow which records the actual cash spent.
So Netflix’s projection for 3 billion is a significant declaration that the company can grow whilst still managing content spend.
The news sent shares up to 343 dollars giving the company a market cap of 155 billion.
And with 6 billion in cash and 14.4 billion of long term debt, the enterprise value is roughly 163 billion.
Revenue over the last 12 months is 31.6 billion and net income was 4.5 billion meaning the company is valued at 5.2 times revenue or 35 times earnings.
And based on the company’s guidance, the company is valued at 54 times next year's free cash flow which is a much more reasonable valuation than it was previously.
There was also good news on subscriber numbers which jumped to 231 million and positive signs from the introduction of paid ads.
Despite this, an investment in Netflix involves some risk. With so many rivals competing for attention, it's still not clear how good a business streaming media is going to be.
The recent rally is based on the idea that Netflix can nearly double free cash flow. But the company still needs to execute on that figure.
Meanwhile, CEO Reed Hastings just stepped down and is being replaced by the duo of Ted Sarandos and Greg Peters. There aren’t many examples of successful companies being run by dual CEOs.
For those reasons I’ve decided to give Netflix a bearish rating. Im not convinced the company has enough growth left to merit the high valuation multiple.
But these are my personal opinions, not financial advice. And I hold no position in the stock.
#stocks #investing #overlookedalpha #stockmarket #netflixstock
Netflix reported earnings last week and the stock jumped almost 10%.
A big reason for the rally was that Netflix said it can bring in $3 billion in free cash flow in 2023, almost double last year's figure of 1.6 billion.
Free cash flow is a key metric here because Netflix earnings account for content costs on an amortized basis.
In other words the cost of content gets written off over time. That means earnings are reported much higher than free cash flow which records the actual cash spent.
So Netflix’s projection for 3 billion is a significant declaration that the company can grow whilst still managing content spend.
The news sent shares up to 343 dollars giving the company a market cap of 155 billion.
And with 6 billion in cash and 14.4 billion of long term debt, the enterprise value is roughly 163 billion.
Revenue over the last 12 months is 31.6 billion and net income was 4.5 billion meaning the company is valued at 5.2 times revenue or 35 times earnings.
And based on the company’s guidance, the company is valued at 54 times next year's free cash flow which is a much more reasonable valuation than it was previously.
There was also good news on subscriber numbers which jumped to 231 million and positive signs from the introduction of paid ads.
Despite this, an investment in Netflix involves some risk. With so many rivals competing for attention, it's still not clear how good a business streaming media is going to be.
The recent rally is based on the idea that Netflix can nearly double free cash flow. But the company still needs to execute on that figure.
Meanwhile, CEO Reed Hastings just stepped down and is being replaced by the duo of Ted Sarandos and Greg Peters. There aren’t many examples of successful companies being run by dual CEOs.
For those reasons I’ve decided to give Netflix a bearish rating. Im not convinced the company has enough growth left to merit the high valuation multiple.
But these are my personal opinions, not financial advice. And I hold no position in the stock.
#stocks #investing #overlookedalpha #stockmarket #netflixstock