4
Netflix, Inc. (NFLX)
- Equity
- US
- Communication Services
RISK
RETURN
Key risk factors
Very vulnerable to price shocks
Strong trading liquidity
Limited default risk
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Very low or no dividends
Company profileNetflix, Inc. provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices. It also provides DVDs-by-mail membership services in the United States. The company has approximately 222 million paid members in 190 countries. Netflix, Inc. was incorporated in 1997 and is headquartered in Los Gatos, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
43.00
34.30
PEG
3.10
-
P/B
13.00
9.40
P/S
7.90
7.10
P/FCF
39.70
206.30
EV/EBITDA
12.60
11.80
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. In particular, the stock is overpriced on P/E, of fair value on EV/EBITDA, and overvalued on P/FCF.
Performance: Decent
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 33ppts over past six months and grown 14ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.
Analyst view: Neutral
The average target price is 675 and suggests 5% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 800.0. This translates into 25% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 446.0. This is equivalent to 30% downside potential in the worst case.
Profitability: Very strong
RoE
Netflix, Inc. reported a return on equity (RoE) of 30.7% in the last 12 months, up from 24.5% in FY22. The market consensus projects an RoE of 39.8% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 13.2% in the last 12 months, an increase from 9.6% in FY22. The market analysts predict that RoA will be 16.8% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 16.2%, above the peers. The consensus estimate for FY24 for RoCE is 26.7%, again ahead of the peers.
Net margin
EBITDA margin
Historically, NFLX has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 18.4%, a growth from 14.2% in FY22. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 65.0% in the last 12 months, a decline from 65.4% in FY22.
RoIC / WACC = 1.9(good value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.9 in the past several years. This ratio implies a good shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
NFLX reported revenue of USD 34 932mn in the last 12 months, up 4% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 20% from FY23 to USD 14.70. Market expects EPS to reach USD 18.44 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA growth has been weak. This all contributed to fast EPS growth (positive). FCF has fallen rapidly, far faster than EBITDA. We emphasize the highly volatile dynamics of FCF and EPS. On the positive side, revenue and EBITDA dynamics is very stable.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Limited
The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, and poor working capital management.
Volatility: Average
In normal market circumstances, NFLX is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to notable. We would also like to highlight the average intraday volatility of the instrument.
Stress-test: Vulnerable
In highly turbulent market conditions, NFLX is highly volatile. In other words, the stock will fall substantially more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be significant.
Selling difficulty: Very low
NFLX boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.