Since the end of 2021, Netflix has experienced uncertain times where its stock has been very volatile. Although its shares went through a bad period, and had fallen almost 38% in the last year, the opposite happened last week. The streaming platform’s shares rose 8.46% after its Q4 earnings report, which may seem to be a good reason to invest in Netflix.
The rise came as the US company announced that it gained more subscribers than expected during the fourth quarter of 2022. There were 7.66 million new subscribers, beating the 4.57 million expected. Apparently, Netflix is upbeat about how the company’s revenue, operating profit, and member growth won its estimates by a relatively healthy margin.
Despite the hype NFLX stock may have been having lately, there are a couple of things you would like to consider before investing in Netflix.
Q4 results
Despite the fact that Netflix acquired more subscribers than expected, experts recommend investors to be cautiously pessimistic about investing in the stock. While Q4 results for Netflix seem positive, they point to an unimpressive growth trajectory.
The numbers in Q4 reports showed that operating profit margins and per-share profits went down by 7% and 91%, respectively. However, on the bright side, revenues grew by just 2% from the same period last year.
For the full year, per-share earnings fell 11%, while revenue growth came in at 6%.
On top of that, results also show a small decrease of paid subscribers in US and Canada. This may work as a heads up about poor performance, making room for obstacles in future growth plans and a hit to overall profitability.
Increasing competition
The main headwind for Netflix has been the increase in direct competition, which has caused it to lose subscribers.
Companies like Walt Disney and Amazon have invested millions of dollars to create content that attracts new audiences. With competition becoming increasingly fierce, Netflix’s customer acquisition continues to lag where it used to be.
It is increasingly complicated for online movie and series streaming companies to develop a more attractive content library for the public in a market where competition is getting stronger and stronger. Even worse, Netflix is on the ropes because it can’t match the investments that other giants are making in creating new content.
In attempt to overcome this, Netflix launched a cheaper option for accessing the content in November. It is ad-supported and only available in 12 countries. In addition, new titles such as “Wednesday” and “Harry & Meghan” have worked as a hook to attract new customers.
Changes in management
Regardless of the company’s stock rise, Netflix co-founder Reed Hastings resigned as CEO, which will now be shared between co-CEO Ted Sarandos and COO Greg Peters.
This change comes as both Peters and Sarandos were promoted in July 2020 amid a difficult time for the company. “It was a baptism by fire, due to Covid and recent challenges within our business,” Hastings said in a statement. “Both have been handled incredibly well … so the board and I believe the time is right to compete for my succession,” he added.
Peters also announced that Netflix will start to implement features to convert password sharers into paying subscribers. He hopes this decision may pay off on the long run despite it may not be a “universally popular move”.
Is Netflix stock a buy?
Netflix is forecasting a “modest” subscriber growth through March. However, to remain competitive, its huge debt load will remain unfavorable. Currently, the company has $8.3 billion of net debt on its balance sheet, outstripping its cash reserves.
Wall Street specialists rate Netflix stock with a “Moderate Buy” rating. Their average price target is $348.63, implying a potential downside of 5.25%. Analyst price targets range from a low of $215 per share to a high of $440.
Taking all of this into account, do you think it’s a good time to invest in Netflix stock? Do you think the company could achieve to dominate the market again?
Make sure to stay up to date with the latest news of the financial world with our NewsFlight newsletter.
(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)
