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Does Netflix's Push Into Live Steaming Justify Buying the Stock Now?
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Netflix's (NFLX - Free Report) transformation from a DVD rental service to a streaming giant is taking another significant leap with its ambitious push into live content. The company's recent successes with events like the Mike Tyson vs. Jake Paul boxing match, which drew 108 million average viewers, demonstrate its potential in the live streaming arena. However, technical challenges during these events raise questions about the platform's readiness for major live programming.
Technical Infrastructure Concerns
Netflix's strategic expansion into live streaming, marked by high-profile events like the Tyson-Paul fight and the $5 billion WWE deal, demonstrates its commitment to diversifying content offerings beyond traditional streaming. However, widespread streaming issues and buffering problems plagued many viewers. These technical difficulties are particularly concerning as the company prepares for even bigger events, including two NFL Christmas Day games and the upcoming launch of WWE's Monday Night Raw in 2025.
The platform's ability to handle large-scale concurrent streaming remains a critical challenge that needs to be addressed. Despite these short-term hurdles, Netflix's strong market position, growing advertising business and comprehensive entertainment strategy suggest long-term potential. However, given the significant investments required and execution risks in live programming, investors might benefit from waiting for stronger evidence of successful implementation before increasing exposure.
Strategic Content Acquisitions
Netflix's $5 billion deal with WWE for Monday Night Raw represents a significant investment in live programming. Combined with NFL games and special events featuring major entertainers like Beyoncé, the company is positioning itself as a comprehensive entertainment destination. This diversification strategy could help Netflix maintain its competitive edge in an increasingly crowded streaming landscape.
Netflix expects paid net additions to be higher sequentially in the fourth quarter due to normal seasonality and a strong content slate. The Zacks Consensus Estimate projects substantial growth in paid subscribers, with total paid memberships expected to reach 290.54 million by the end of 2024, indicating an 11.6% year-over-year increase.
Financial Implications and Growth Prospects
The company expects revenues to grow in the range of 11-13% in 2025, reaching $43-$44 billion. This growth rate represents a slowdown from the 15% expected in 2024. Netflix's investment in live content and infrastructure improvements may pressure margins in the short term, though management targets a 28% operating margin for 2025.
With total debt reaching $15.98 billion and streaming content obligations at $22.7 billion, Netflix faces significant financial commitments.
The Zacks Consensus Estimate for 2024 revenues is pegged at $38.91 billion, indicating 15.37% year-over-year growth. The consensus mark for earnings is pegged at $19.78 per share, indicating a substantial 64.42% increase from the previous year.
Image Source: Zacks Investment Research
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The recent surge in Netflix's stock price has led to expanded valuation multiples, potentially limiting future upside for investors. The company's forward 12-month sales multiple of 8.73 exceeds its five-year median of 6.53, indicating that the stock may be trading at a premium to its historical valuation. Moreover, this multiple surpasses the Zacks Broadcast Radio and Television industry's forward earnings multiple of 3.4, suggesting that Netflix's valuation is stretched relative to its peers.
Price-to-Sales (Forward 12 Months)
Image Source: Zacks Investment Research
Market Position and Competition
As traditional media companies increasingly bundle their services, Netflix is taking a different approach by expanding its standalone offering. The addition of live sports and entertainment could help justify future price increases and reduce churn. However, the technical challenges and high costs associated with live programming present risks.
Investors have responded enthusiastically to Netflix's performance, with NFLX shares returning an impressive 81.5% year to date, significantly outperforming tech giants like Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) and Disney (DIS - Free Report) , as well as the broader Consumer Discretionary sector.
Year-to-date Performance
Image Source: Zacks Investment Research
Investment Outlook
While Netflix's push into live streaming shows promise, current investors should maintain their positions but new investors might want to wait for a better entry point. The company needs to prove that it can consistently deliver high-quality live streaming experiences before the market fully prices in this growth opportunity. Additionally, the significant investments required for live content rights and technical infrastructure may impact near-term profitability.
Conclusion
Netflix's venture into live streaming represents both an opportunity and a challenge. While the strategy could strengthen its market position, technical hurdles and high costs suggest caution. Current shareholders should remain invested to benefit from the company's long-term potential, but new investors might find better entry points after Netflix demonstrates consistent execution in live programming delivery. Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Does Netflix's Push Into Live Steaming Justify Buying the Stock Now?
Netflix's (NFLX - Free Report) transformation from a DVD rental service to a streaming giant is taking another significant leap with its ambitious push into live content. The company's recent successes with events like the Mike Tyson vs. Jake Paul boxing match, which drew 108 million average viewers, demonstrate its potential in the live streaming arena. However, technical challenges during these events raise questions about the platform's readiness for major live programming.
Technical Infrastructure Concerns
Netflix's strategic expansion into live streaming, marked by high-profile events like the Tyson-Paul fight and the $5 billion WWE deal, demonstrates its commitment to diversifying content offerings beyond traditional streaming. However, widespread streaming issues and buffering problems plagued many viewers. These technical difficulties are particularly concerning as the company prepares for even bigger events, including two NFL Christmas Day games and the upcoming launch of WWE's Monday Night Raw in 2025.
The platform's ability to handle large-scale concurrent streaming remains a critical challenge that needs to be addressed. Despite these short-term hurdles, Netflix's strong market position, growing advertising business and comprehensive entertainment strategy suggest long-term potential. However, given the significant investments required and execution risks in live programming, investors might benefit from waiting for stronger evidence of successful implementation before increasing exposure.
Strategic Content Acquisitions
Netflix's $5 billion deal with WWE for Monday Night Raw represents a significant investment in live programming. Combined with NFL games and special events featuring major entertainers like Beyoncé, the company is positioning itself as a comprehensive entertainment destination. This diversification strategy could help Netflix maintain its competitive edge in an increasingly crowded streaming landscape.
Netflix expects paid net additions to be higher sequentially in the fourth quarter due to normal seasonality and a strong content slate. The Zacks Consensus Estimate projects substantial growth in paid subscribers, with total paid memberships expected to reach 290.54 million by the end of 2024, indicating an 11.6% year-over-year increase.
Financial Implications and Growth Prospects
The company expects revenues to grow in the range of 11-13% in 2025, reaching $43-$44 billion. This growth rate represents a slowdown from the 15% expected in 2024. Netflix's investment in live content and infrastructure improvements may pressure margins in the short term, though management targets a 28% operating margin for 2025.
With total debt reaching $15.98 billion and streaming content obligations at $22.7 billion, Netflix faces significant financial commitments.
The Zacks Consensus Estimate for 2024 revenues is pegged at $38.91 billion, indicating 15.37% year-over-year growth. The consensus mark for earnings is pegged at $19.78 per share, indicating a substantial 64.42% increase from the previous year.
Image Source: Zacks Investment Research
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The recent surge in Netflix's stock price has led to expanded valuation multiples, potentially limiting future upside for investors. The company's forward 12-month sales multiple of 8.73 exceeds its five-year median of 6.53, indicating that the stock may be trading at a premium to its historical valuation. Moreover, this multiple surpasses the Zacks Broadcast Radio and Television industry's forward earnings multiple of 3.4, suggesting that Netflix's valuation is stretched relative to its peers.
Price-to-Sales (Forward 12 Months)
Image Source: Zacks Investment Research
Market Position and Competition
As traditional media companies increasingly bundle their services, Netflix is taking a different approach by expanding its standalone offering. The addition of live sports and entertainment could help justify future price increases and reduce churn. However, the technical challenges and high costs associated with live programming present risks.
Investors have responded enthusiastically to Netflix's performance, with NFLX shares returning an impressive 81.5% year to date, significantly outperforming tech giants like Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) and Disney (DIS - Free Report) , as well as the broader Consumer Discretionary sector.
Year-to-date Performance
Image Source: Zacks Investment Research
Investment Outlook
While Netflix's push into live streaming shows promise, current investors should maintain their positions but new investors might want to wait for a better entry point. The company needs to prove that it can consistently deliver high-quality live streaming experiences before the market fully prices in this growth opportunity. Additionally, the significant investments required for live content rights and technical infrastructure may impact near-term profitability.
Conclusion
Netflix's venture into live streaming represents both an opportunity and a challenge. While the strategy could strengthen its market position, technical hurdles and high costs suggest caution. Current shareholders should remain invested to benefit from the company's long-term potential, but new investors might find better entry points after Netflix demonstrates consistent execution in live programming delivery. Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.