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Netflix (NFLX - Free Report) was the first of big tech to report its Q4 results and investors’ incredible disappointment may have just pulled the “big” out of its classification. Despite a top and bottom-line beat for this market-disrupting streaming pioneer, NFLX capitulated roughly 22% in its worst one-day decline in a decade.
Netflix is looking at peak growth in the rearview mirror with that nostalgic longing that makes you do things you might regret, like spending billions to enter the already oversaturated gaming space in an attempt to reinvigorate its one surging growth outlook.
Netflix’s pandemic tailwind has come to an end. The streaming king’s latest quarterly release is pointing to further deceleration in its global subscriber growth, reining in analysts’ estimates and price targets, which dragged NFLX down to a Zacks Rank #5 (Strong Sell).
Growth Outlook
Netflix’s domestic subscription growth appears to be topping out, with 75 million being the magic number for North America (US & Canada) that covers the 120 million households in the region. The streaming king is now relying on international subscriber growth and incremental increases in sub-prices for its “endless” expansion to continue.
Investors can no longer justify a 50x+ P/E multiple on NFLX, with only these secondary growth drivers at the company’s disposal. Netflix has lost nearly half of the $300 billion valuation it was given only a couple months ago as shareholders abandon this pandemic winner as the global economy reemerges from the lockdowns (where Netflix thrived).
My Concerns
Netflix has come down to a 29x P/E, which is the first reasonable valuation multiple I have seen in this name (first time below 40x since IPO), but my concerns are more about how management is responding to this growth lapse.
Netflix has recently cleaned house at the C-suite level. This management team being largely brought on in the past 3 years. I’m guessing that the board has tasked this group of enthusiastic leaders with reinvigorating long-term growth.
My biggest worry is that its fresh management team will hemorrhage too much cash attempting to recreate its once booming streaming growth with new ventures like its gaming segment, that won’t end up adding any value to the company or its shareholders.
Despite what some shareholders may believe, Netflix will never be able to recreate the nascent market-disrupting value that its streaming service rendered when it was introduced in 2007. Netflix changed the way the world consumes movies & TV: cutting the ad-ridden cable cord and allowing users to watch what they want when they want commercial free.
The streaming idea was such a hit that every production company with a substantial enough library began their own on-demand platform. This created a very competitive landscape for Netflix and forced them to spend billions on building out their own content library to match production houses like Disney (DIS - Free Report) who had decades upon decades of highly demanded content.
Netflix’s new management team has not proven themselves to the markets yet and its being reflected in its share price. I would stay away until this new leadership class has the approval of the broader investing public.
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Bear Of The Day: Netflix (NFLX)
Netflix (NFLX - Free Report) was the first of big tech to report its Q4 results and investors’ incredible disappointment may have just pulled the “big” out of its classification. Despite a top and bottom-line beat for this market-disrupting streaming pioneer, NFLX capitulated roughly 22% in its worst one-day decline in a decade.
Netflix is looking at peak growth in the rearview mirror with that nostalgic longing that makes you do things you might regret, like spending billions to enter the already oversaturated gaming space in an attempt to reinvigorate its one surging growth outlook.
Netflix’s pandemic tailwind has come to an end. The streaming king’s latest quarterly release is pointing to further deceleration in its global subscriber growth, reining in analysts’ estimates and price targets, which dragged NFLX down to a Zacks Rank #5 (Strong Sell).
Growth Outlook
Netflix’s domestic subscription growth appears to be topping out, with 75 million being the magic number for North America (US & Canada) that covers the 120 million households in the region. The streaming king is now relying on international subscriber growth and incremental increases in sub-prices for its “endless” expansion to continue.
Investors can no longer justify a 50x+ P/E multiple on NFLX, with only these secondary growth drivers at the company’s disposal. Netflix has lost nearly half of the $300 billion valuation it was given only a couple months ago as shareholders abandon this pandemic winner as the global economy reemerges from the lockdowns (where Netflix thrived).
My Concerns
Netflix has come down to a 29x P/E, which is the first reasonable valuation multiple I have seen in this name (first time below 40x since IPO), but my concerns are more about how management is responding to this growth lapse.
Netflix has recently cleaned house at the C-suite level. This management team being largely brought on in the past 3 years. I’m guessing that the board has tasked this group of enthusiastic leaders with reinvigorating long-term growth.
My biggest worry is that its fresh management team will hemorrhage too much cash attempting to recreate its once booming streaming growth with new ventures like its gaming segment, that won’t end up adding any value to the company or its shareholders.
Despite what some shareholders may believe, Netflix will never be able to recreate the nascent market-disrupting value that its streaming service rendered when it was introduced in 2007. Netflix changed the way the world consumes movies & TV: cutting the ad-ridden cable cord and allowing users to watch what they want when they want commercial free.
The streaming idea was such a hit that every production company with a substantial enough library began their own on-demand platform. This created a very competitive landscape for Netflix and forced them to spend billions on building out their own content library to match production houses like Disney (DIS - Free Report) who had decades upon decades of highly demanded content.
Netflix’s new management team has not proven themselves to the markets yet and its being reflected in its share price. I would stay away until this new leadership class has the approval of the broader investing public.