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After Earnings Meltdown, Is Netflix Worth Another Look?
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It’s been a very rough and frustrating stretch in the market year-to-date, and investors are seemingly becoming worn out from all of the sell-offs we’ve witnessed. Buyers have completely gone into hiding, and bears have had the upper hand all year long, delivering blows left and right.
Soaring energy prices, geopolitical issues, and a hawkish Fed have been the main driving forces behind much of the valuation slashes we’ve seen. Additionally, the high-flying stay-at-home stocks are dropping significantly as we wade out of a once-in-a-lifetime pandemic.
One of the companies that benefitted majorly from the stay-at-home orders and a world that had been shut down was the all-mighty streaming giant Netflix (NFLX - Free Report) . Once widely hailed and an investors’ favorite in many portfolios, the tide shifted significantly for the company in late 2021 and all throughout 2022.
The chart below shows the share performance of NFLX shares over the last five years while blending in the S&P 500 for a benchmark. It'll cause any investor's stomach to drop.
Image Source: Zacks Investment Research
As we can see, NFLX was a top-tier investment for many years. However, the steep decline we’ve recently witnessed has nearly erased all gains and has caused it to underperform the general market significantly.
The year-to-date chart of NFLX shares is eye-popping. The chart below illustrates 2022 performance so far, with the S&P 500 blended in again for a benchmark.
Image Source: Zacks Investment Research
Down nearly 75% year-to-date, the company’s shares have had little time to breathe, and it’s one of the steeper valuation slashes we’ve seen in a company this year. If investors loved Netflix near the levels it traded over the last few years, one has to wonder how they feel about it at this price. Is the company still worth a spot in your portfolio?
Growth Slowdown
With the recent surge of online streaming services, the industry has become much more competitive, pushing NFLX out of the top-dog spot it used to sit at alone. For example, we now have Amazon (AMZN - Free Report) Prime Video, Apple (AAPL - Free Report) TV, Roku (ROKU - Free Report) , and Disney+ (DIS - Free Report) all pushing boundaries and making the space challenging to compete.
This has been a big headache for NFLX and has undoubtedly added fuel to the fire sale that shares have been on. As these companies further develop their streaming services, NFLX must find a way to innovate to reclaim its former glory and its industry stance.
Subscriber count is easily the most vital metric for the streaming giant, and things have recently taken a turn for the worst in this area. In 2021 Q4, the company provided disappointing guidance that it was expecting new subscriber adds of 2.5 million in the 2022 Q1, well below the consensus of seven million expected. Fast-forward to 2022 Q1, and the company reported that it had actually lost more than 200,000 subscribers; NFLX then provided disheartening guidance that it was expecting another drop of two million subscribers for the upcoming quarter.
This undoubtedly re-lit the flame on the fire sale, as NFLX shares tanked 35% following the quarterly report. Needless to say, investors priced in the growth slowdown and quickly abandoned their positions.
Quarterly EPS & Revenue
The company has missed quarterly revenue estimates in two out of its last four quarters, reflecting a declining subscriber base. However, the company has used its pricing power by increasing subscription costs, helping to keep the top line afloat.
Simply increasing subscription costs seems like a double-edged sword; subscribers may leave looking for cheaper alternatives, but the subscribers the company does retain will bring in a higher level of revenue. Simply put, it seems like a risky approach.
On a brighter note, the company has exceeded EPS expectations in three of its last four quarterly reports. The company has an average EPS surprise of 25% in this timeframe, and in its latest quarter, NFLX exceeded EPS expectations by 21%. However, for FY22, earnings are expected to decline 3% year-over-year from 2021, with five analysts downgrading their current full-year estimates for FY22.
Financial Statements
Looking at the balance sheet, NFLX had cash and equivalents of $6 billion as of its latest quarter, far below its current liabilities value of $7.7 billion; its cash ratio is 0.71. The company has utilized immense amounts of debt to fuel its content creation, which is seemingly coming back to haunt them. Additionally, the company currently has a negative free cash flow.
Bottom Line
Although the company is now sporting much more reasonable valuation metrics following its sell-off, it’s still tricky to paint a bullish picture for the streaming giant moving forward. Additionally, NFLX has already announced another massive subscriber loss for its upcoming quarter in guidance the company provided in its 2022 Q1 earnings call.
A declining subscriber base, a highly-leveraged balance sheet, and increasing industry competition have played spoilsport for the company. Due to these reasons, it’s beneficial for investors to look to other places to park their cash when seeking exposure to the online streaming arena.
Image: Bigstock
After Earnings Meltdown, Is Netflix Worth Another Look?
It’s been a very rough and frustrating stretch in the market year-to-date, and investors are seemingly becoming worn out from all of the sell-offs we’ve witnessed. Buyers have completely gone into hiding, and bears have had the upper hand all year long, delivering blows left and right.
Soaring energy prices, geopolitical issues, and a hawkish Fed have been the main driving forces behind much of the valuation slashes we’ve seen. Additionally, the high-flying stay-at-home stocks are dropping significantly as we wade out of a once-in-a-lifetime pandemic.
One of the companies that benefitted majorly from the stay-at-home orders and a world that had been shut down was the all-mighty streaming giant Netflix (NFLX - Free Report) . Once widely hailed and an investors’ favorite in many portfolios, the tide shifted significantly for the company in late 2021 and all throughout 2022.
The chart below shows the share performance of NFLX shares over the last five years while blending in the S&P 500 for a benchmark. It'll cause any investor's stomach to drop.
Image Source: Zacks Investment Research
As we can see, NFLX was a top-tier investment for many years. However, the steep decline we’ve recently witnessed has nearly erased all gains and has caused it to underperform the general market significantly.
The year-to-date chart of NFLX shares is eye-popping. The chart below illustrates 2022 performance so far, with the S&P 500 blended in again for a benchmark.
Image Source: Zacks Investment Research
Down nearly 75% year-to-date, the company’s shares have had little time to breathe, and it’s one of the steeper valuation slashes we’ve seen in a company this year. If investors loved Netflix near the levels it traded over the last few years, one has to wonder how they feel about it at this price. Is the company still worth a spot in your portfolio?
Growth Slowdown
With the recent surge of online streaming services, the industry has become much more competitive, pushing NFLX out of the top-dog spot it used to sit at alone. For example, we now have Amazon (AMZN - Free Report) Prime Video, Apple (AAPL - Free Report) TV, Roku (ROKU - Free Report) , and Disney+ (DIS - Free Report) all pushing boundaries and making the space challenging to compete.
This has been a big headache for NFLX and has undoubtedly added fuel to the fire sale that shares have been on. As these companies further develop their streaming services, NFLX must find a way to innovate to reclaim its former glory and its industry stance.
Subscriber count is easily the most vital metric for the streaming giant, and things have recently taken a turn for the worst in this area. In 2021 Q4, the company provided disappointing guidance that it was expecting new subscriber adds of 2.5 million in the 2022 Q1, well below the consensus of seven million expected. Fast-forward to 2022 Q1, and the company reported that it had actually lost more than 200,000 subscribers; NFLX then provided disheartening guidance that it was expecting another drop of two million subscribers for the upcoming quarter.
This undoubtedly re-lit the flame on the fire sale, as NFLX shares tanked 35% following the quarterly report. Needless to say, investors priced in the growth slowdown and quickly abandoned their positions.
Quarterly EPS & Revenue
The company has missed quarterly revenue estimates in two out of its last four quarters, reflecting a declining subscriber base. However, the company has used its pricing power by increasing subscription costs, helping to keep the top line afloat.
Simply increasing subscription costs seems like a double-edged sword; subscribers may leave looking for cheaper alternatives, but the subscribers the company does retain will bring in a higher level of revenue. Simply put, it seems like a risky approach.
On a brighter note, the company has exceeded EPS expectations in three of its last four quarterly reports. The company has an average EPS surprise of 25% in this timeframe, and in its latest quarter, NFLX exceeded EPS expectations by 21%. However, for FY22, earnings are expected to decline 3% year-over-year from 2021, with five analysts downgrading their current full-year estimates for FY22.
Financial Statements
Looking at the balance sheet, NFLX had cash and equivalents of $6 billion as of its latest quarter, far below its current liabilities value of $7.7 billion; its cash ratio is 0.71. The company has utilized immense amounts of debt to fuel its content creation, which is seemingly coming back to haunt them. Additionally, the company currently has a negative free cash flow.
Bottom Line
Although the company is now sporting much more reasonable valuation metrics following its sell-off, it’s still tricky to paint a bullish picture for the streaming giant moving forward. Additionally, NFLX has already announced another massive subscriber loss for its upcoming quarter in guidance the company provided in its 2022 Q1 earnings call.
A declining subscriber base, a highly-leveraged balance sheet, and increasing industry competition have played spoilsport for the company. Due to these reasons, it’s beneficial for investors to look to other places to park their cash when seeking exposure to the online streaming arena.
Netflix, Inc. Price, Consensus and EPS Surprise
Netflix, Inc. price-consensus-eps-surprise-chart | Netflix, Inc. Quote