- Online streaming powerhouse Netflix reports better-than-expected 2022 results
- Founder-CEO Reed Hastings is leaving the company
- Netflix stock rebounds but still trades significantly below its all-time highs
Netflix (NASDAQ:NFLX) is a true disruptor in the entertainment and technology industry. It revolutionised how we watch movies forever. After growing relentlessly in the 2010s, during which shareholders reaped fantastic rewards, will this decade be more of the same even though CEO Hastings is stepping down?
Is Netflix (NASDAQ:NFLX) a good investment in the long term?
If there is a ‘Stock of the Decade’ award for 2010-20, Netflix (NASDAQ:NFLX) would be a strong contender. The online streaming firm disrupted the entertainment and technology industry by toppling the former champion – Blockbuster (now bankrupt).
Wall Street loved stocks like these. Early on, Netflix was part of the elite tech stocks called ‘FAANG‘ – big technology giants that move industries and shape our lives. Investors who bought Netflix in the early days made a fortune.
Netflix’s share price soared from $7 in 2010 to $700 just ten years later – a 100-fold return. Very few stocks produced returns of that magnitude.
But is Netflix still a buy? Looking back, 2022 was an ‘annus horribilis’ for the company. Its lofty share prices went into a tailspin after results underperformed expectations. From $600 per share, it crashed to a low of $150 – a three-quarter drop.
While prices have started to recover (trading at around $310 in early January 23), it is still way below the pandemic highs.
Some say Netflix is no longer the ‘golden stock’ that it once was. The primary reason is that competition is heating up.
Big entertainment firms like Disney are now spending billions to take advantage of the growing streaming industry. And the advantageous impact of the pandemic is fading. We no longer ‘binge-watch’ Netflix movies. As such, Netflix’s global audience is not going to rise as fast as previously assumed. Lastly, the risk of a recession lurks in the background. This will squeeze spending on Netflix. Now, founder-CEO Reed Hastings is stepping down – a move that may create some turbulence at the top.
- Investing guide – How to invest in a recession
That said, Netflix will remain a powerhouse in the entertainment industry for the foreseeable future. Its share of the TV is No 1 (see below). The firm is continuing to make blockbuster programs (Squid Game – Netflix’s top-viewed program in 94 countries!). Yes, the stock has plunged, but it may rebound when the bullish sentiment returns.
Just this week, Netflix released 4Q results that are surprisingly better than the negative market expectations.
“In 2022,” the company announced “we finished with 231M paid memberships and generated $32B of revenue, $5.6B in operating income, $2.0B of net cash from operating activities and $1.6B of free cash flow (FCF). In 2023, we expect at least $3B of FCF, assuming no material swings in F/X.“
We are not going to write off Netflix just yet.
Netflix is a monster stock to trade. Notice how many price gaps were produced on its daily chart? (Note: A gap happens when today’s trading range is completely above or below yesterday’s trading range.)
Multiple price gaps mean very high price volatility for traders and investors because the position equity can swing violently overnight.
Therefore, Netflix is perhaps best traded with lower positional sizes. Specific trading strategies to consider include: one, buying Netflix at the bottom of an established range for a contrarian bounce; two, buying Netflix on a breakout above an established range.
An example of the latter is at $190 back in July. Another is at 240 in October.
For positional trades, I would buy the stock after a setback, preferably near an established floor. This skews the risk-reward ratio in favour of buyers.
Lastly, when Netflix is trending, and you are on the right side, stay in to maximise the gains.
The market is dominated by investor sentiment. Fundamentals only matter as long as the market decides that they matter. For example, many tech stocks were loss-making in 2021, yet their share prices rocketed to stratospheric levels.
This year, investors decided that Netflix should be ‘cash flow positive’ and punished it for a loss in subscribers and not taking drastic action earlier. Investors are also spooked by the increased competition and a potential slowdown in consumer spending.
However, things have stabilised somewhat. Netflix’s top-line revenue by quarters did not crater. P&L continues to hum along. After such a drastic fall in share price, Netflix was oversold. Plus, Netflix is starting to introduce ads in its programs. This may increase income over time.
At the moment, the $140 billion company is neither overvalued (like it was back in 2021) nor undervalued.
Source: Netflix Inc
After a massive decline last year, Netflix’s share price has stabilised above $300. This is because of:
- General rebound in global equity markets – especially tech stocks because interest rate hikes are expected to slow down.
- Oversold rebound – having slumped 75% from its 2022 peak, investors decided that a punt is worth taking on Netflix.
- Competitors’ weakness – Netflix’s losses may be less than expected this year and may even benefit from the massive losses sustained by its competitors
After a multi-month rally, the stock is not as oversold as before. A period of choppy trading may happen despite the improving macro headlines.
Wall Street has taken a bearish view on Netflix. This is understandable given how poorly its share price has performed over the past 12 months. Even Goldman Sachs has given up on Netflix in 2022.
This time last year, the distribution of recommendations on Netflix was 29 on ‘Buy’ or ‘Outperform’. This dropped to 21. Herding happens in the broker industry too.
On Netflix’s price target, the median level is $342, which the stock almost touched in mid-January.
The question for readers is this: Do you wish to go against Wall Street? Sometimes, swimming against the herd may yield good results because everyone else is standing on the other side.
To buy shares in Netflix (NASDAQ:NFLX), you need a trading or share dealing account. Follow these three steps if you want to buy shares in Netflix from the UK:
- Decide if you want to buy Netflix shares in the short-term or invest in the long-term
- Compare share dealing and trading fees in our comparison tables
- Choose which broker is right for you and open an account
- You can use our table to compare the best brokers for trading Netflix shares. All brokers in this list are authorised and regulated by the FCA. CFDs & spread betting carry a high level of risk and losses can exceed your deposits.
- If you want to buy shares in Netflix from the UK, you need an FCA-regulated stock broker that provides access to US stocks. You can use our comparison of UK-based share dealing platforms that offer access to international markets and see what they charge for buying and selling US stocks, plus what the foreign exchange conversion costs are for converting GBP into USD.
Buying one NASDAQ:NFLX share costs $315.78. However, as well as the $315.78 cost of buying each share you will also have to pay any relevant tax, commission when you buy and sell shares, custody fees for holding your shares on your account and foreign exchange fees for converting GBP into USD. You also have to consider the difference between the bid price (the price at which you sell shares) and the offer price (the price at which you buy shares). These fees vary depending on what sort of account you open, and with what broker. You can compare the different costs associated with the different types of trading and investing accounts in our comparison tables below.
The current NASDAQ:NFLX share price is $315.78 which is a change of -10.55 or -3.23% from the last closing price of 315.78 with 30,451 shares traded giving NASDAQ:NFLX a market capitalisation of $140,528,509,790. The most recent daily high has been 324.89 and daily low 313.39. The NASDAQ:NFLX share price 52 week high has been 526.64 and the 52 week low 162.71. Based on the most recent NASDAQ:NFLX share price opening of 315.78, the current NASDAQ:NFLX EPS (earnings per share) are 11.16 and the PE (price earnings ratio) is 28.28.
Pricing data automatically updates every 15 minutes