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Netflix's (NFLX) Shares Rise 29.7% YTD: Time to Buy the Stock?
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Netflix (NFLX - Free Report) has seen its stock price soar 29.7% since the beginning of the year, outpacing the broader Zacks Consumer Discretionary sector and catching the attention of investors. This significant rally prompts a closer examination of the factors driving this streaming giant's growth and whether the stock still presents a compelling buying opportunity.
Netflix's recent performance can be attributed to several factors, including its unparalleled content production capabilities and strategic initiatives. The company's ability to consistently deliver hit shows and movies drives subscriber growth and retention, while its expansion into ad-supported tiers and gaming diversifies revenue streams.
Content remains king in the streaming wars, and Netflix continues to invest heavily in original programming. High-profile releases and a steady stream of popular shows and movies have helped retain existing subscribers and attract new ones. The company's ability to produce globally appealing content has been particularly crucial in driving international growth.
For 2024, its Japanese content lineup includes significant titles like Beyond Goodbye, Tokyo Swindlers, Meet the Men and Soul Mate. The anime lineup features new seasons of popular shows like From Me to You: Kimi ni Todoke and Beastars, as well as new series, such as Moonrise, Beat & Motion, Devil May Cry and Gundam: Requiem for Vengeance.
In Indonesia, Netflix is diversifying its original content with a variety of genres. The upcoming film, Abadi Nan Jaya, is set to premiere in 2025. In the Philippines, NFLX is set to release Outside, a psychological thriller directed by Carlo Ledesma, on Oct 11, 2024. Netflix is set to release 10 titles in Thai in the rest of 2024, including Doctor Climax, which is set in the late '70s. NFLX is also expanding its gaming and animated series offerings. Exploding Kittens promises humor with a plot involving God and the Antichrist trapped in cat bodies. Terminator Zero, set to premiere on Aug 29, reimagines the classic Terminator saga in an animated format.
The Zacks Consensus Estimate for paid total streaming net membership additions in 2024 is pegged at 29.8 million. The consensus mark for total paid subscribers at the end of 2024 is pegged at 290.4 million, indicating 11.6% growth year over year.
The company's crackdown on password sharing has begun to bear fruit, with millions of new subscribers joining the platform. This initiative was initially met with skepticism but has proved to be a successful strategy for monetizing previously shared accounts and expanding the user base. With a robust international presence, data-driven content creation and a strong brand, Netflix is well-positioned to capitalize on the growing global demand for streaming entertainment.
Additionally, Netflix's foray into advertising-supported tiers has opened up new revenue streams and attracted price-sensitive consumers. This move has not only boosted subscriber numbers but also diversified the company's income sources, potentially leading to more stable and predictable earnings in the future.
For 2024, NFLX expects healthy revenue growth of 14-15% based on F/X rates at the end of the second quarter of 2024, up from 13-15% reported previously. The updated revenue forecast indicates solid membership growth trends and business momentum. Netflix is building an in-house ad tech platform that will be tested in Canada this year and launched more broadly in 2025.
The Zacks Consensus Estimate for revenues is pegged at $38.68 billion, indicating 14.7% growth year over year. The consensus mark for earnings is pegged at $19.08 per share, indicating 58.6% growth year over year.
Image Source: Zacks Investment Research
The company now expects the full-year 2024 operating margin to be 26% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 25%, due to the improved revenue outlook and ongoing expense discipline.
The company's innovative technology and adaptability ensure its continued leadership in the evolving digital media landscape. As streaming becomes increasingly central to entertainment consumption worldwide, Netflix stands to benefit substantially, offering investors exposure to this high-growth sector. However, potential investors should remain vigilant of content costs, subscriber growth rates and the evolving competitive dynamics within the streaming industry.
Challenges Remain
Netflix contends with robust rivals such as Disney’s (DIS - Free Report) Disney+, Warner Bros. Discovery (WBD - Free Report) -owned HBO Max, Peacock, Paramount+, Apple’s (AAPL - Free Report) Apple TV+ and Amazon, potentially putting pressure on Netflix's growth and profit margins. Additionally, Netflix competes for consumer attention against traditional linear TV, YouTube, short-form content platforms like TikTok and the gaming industry. The company's ability to maintain its leadership position in this crowded field will be critical to its long-term success.
Valuation is another key consideration for potential investors. With the recent stock price surge, Netflix's valuation multiples have expanded, potentially limiting future upside. Currently, NFLX is trading at 6.56X forward 12 months sales, above its five-year median of 6.02X. Meanwhile, the Zacks Broadcast Radio and Television industry’s forward earnings multiple sits at 4.35X. The company’s valuation looks somewhat stretched compared with its own range and the industry average.
Price-to-Sales (Forward 12 Months)
Image Source: Zacks Investment Research
Final Thoughts
Despite a premium valuation and fierce competition in the streaming sector, Netflix remains a compelling investment. Its first-mover advantage, extensive global footprint and track record of producing culturally significant content set it apart. These factors, combined with Netflix's ability to adapt and innovate, suggest it is well-equipped to maintain market leadership and capitalize on the growing digital entertainment landscape, making the stock worth buying in the near term.
Image: Bigstock
Netflix's (NFLX) Shares Rise 29.7% YTD: Time to Buy the Stock?
Netflix (NFLX - Free Report) has seen its stock price soar 29.7% since the beginning of the year, outpacing the broader Zacks Consumer Discretionary sector and catching the attention of investors. This significant rally prompts a closer examination of the factors driving this streaming giant's growth and whether the stock still presents a compelling buying opportunity.
Netflix's recent performance can be attributed to several factors, including its unparalleled content production capabilities and strategic initiatives. The company's ability to consistently deliver hit shows and movies drives subscriber growth and retention, while its expansion into ad-supported tiers and gaming diversifies revenue streams.
Year-to-date Performance
Image Source: Zacks Investment Research
Streaming's Crown Jewel: Analyzing Netflix's Investment Potential
Content remains king in the streaming wars, and Netflix continues to invest heavily in original programming. High-profile releases and a steady stream of popular shows and movies have helped retain existing subscribers and attract new ones. The company's ability to produce globally appealing content has been particularly crucial in driving international growth.
For 2024, its Japanese content lineup includes significant titles like Beyond Goodbye, Tokyo Swindlers, Meet the Men and Soul Mate. The anime lineup features new seasons of popular shows like From Me to You: Kimi ni Todoke and Beastars, as well as new series, such as Moonrise, Beat & Motion, Devil May Cry and Gundam: Requiem for Vengeance.
In Indonesia, Netflix is diversifying its original content with a variety of genres. The upcoming film, Abadi Nan Jaya, is set to premiere in 2025. In the Philippines, NFLX is set to release Outside, a psychological thriller directed by Carlo Ledesma, on Oct 11, 2024. Netflix is set to release 10 titles in Thai in the rest of 2024, including Doctor Climax, which is set in the late '70s. NFLX is also expanding its gaming and animated series offerings. Exploding Kittens promises humor with a plot involving God and the Antichrist trapped in cat bodies. Terminator Zero, set to premiere on Aug 29, reimagines the classic Terminator saga in an animated format.
The Zacks Consensus Estimate for paid total streaming net membership additions in 2024 is pegged at 29.8 million. The consensus mark for total paid subscribers at the end of 2024 is pegged at 290.4 million, indicating 11.6% growth year over year.
The company's crackdown on password sharing has begun to bear fruit, with millions of new subscribers joining the platform. This initiative was initially met with skepticism but has proved to be a successful strategy for monetizing previously shared accounts and expanding the user base. With a robust international presence, data-driven content creation and a strong brand, Netflix is well-positioned to capitalize on the growing global demand for streaming entertainment.
Additionally, Netflix's foray into advertising-supported tiers has opened up new revenue streams and attracted price-sensitive consumers. This move has not only boosted subscriber numbers but also diversified the company's income sources, potentially leading to more stable and predictable earnings in the future.
For 2024, NFLX expects healthy revenue growth of 14-15% based on F/X rates at the end of the second quarter of 2024, up from 13-15% reported previously. The updated revenue forecast indicates solid membership growth trends and business momentum. Netflix is building an in-house ad tech platform that will be tested in Canada this year and launched more broadly in 2025.
The Zacks Consensus Estimate for revenues is pegged at $38.68 billion, indicating 14.7% growth year over year. The consensus mark for earnings is pegged at $19.08 per share, indicating 58.6% growth year over year.
Image Source: Zacks Investment Research
The company now expects the full-year 2024 operating margin to be 26% (based on F/X rates as of Jan 1, 2024), up from the prior forecast of 25%, due to the improved revenue outlook and ongoing expense discipline.
The company's innovative technology and adaptability ensure its continued leadership in the evolving digital media landscape. As streaming becomes increasingly central to entertainment consumption worldwide, Netflix stands to benefit substantially, offering investors exposure to this high-growth sector. However, potential investors should remain vigilant of content costs, subscriber growth rates and the evolving competitive dynamics within the streaming industry.
Challenges Remain
Netflix contends with robust rivals such as Disney’s (DIS - Free Report) Disney+, Warner Bros. Discovery (WBD - Free Report) -owned HBO Max, Peacock, Paramount+, Apple’s (AAPL - Free Report) Apple TV+ and Amazon, potentially putting pressure on Netflix's growth and profit margins. Additionally, Netflix competes for consumer attention against traditional linear TV, YouTube, short-form content platforms like TikTok and the gaming industry. The company's ability to maintain its leadership position in this crowded field will be critical to its long-term success.
Valuation is another key consideration for potential investors. With the recent stock price surge, Netflix's valuation multiples have expanded, potentially limiting future upside. Currently, NFLX is trading at 6.56X forward 12 months sales, above its five-year median of 6.02X. Meanwhile, the Zacks Broadcast Radio and Television industry’s forward earnings multiple sits at 4.35X. The company’s valuation looks somewhat stretched compared with its own range and the industry average.
Price-to-Sales (Forward 12 Months)
Image Source: Zacks Investment Research
Final Thoughts
Despite a premium valuation and fierce competition in the streaming sector, Netflix remains a compelling investment. Its first-mover advantage, extensive global footprint and track record of producing culturally significant content set it apart. These factors, combined with Netflix's ability to adapt and innovate, suggest it is well-equipped to maintain market leadership and capitalize on the growing digital entertainment landscape, making the stock worth buying in the near term.
Netflix currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.