Netflix, Inc. (NASDAQ: NFLX) remains the king of streaming, despite a recent stock price pullback. The company’s FQ1’24 earnings call reaffirmed its dominance, with double-beat results demonstrating its continued strength in the industry. Netflix reported revenue growth of 6.1% QoQ and 14.8% YoY, operating margins of 28.1% (+11.2 points QoQ/+7.1 YoY), and adjusted EPS of $5.28 (+150.2% QoQ/+83.3% YoY). Subscriber growth reached 269.6M (+9.32M QoQ/+37.1M YoY), and Average monthly Revenue per Membership [ARM] remained relatively stable at $11.58 (+2.3% QoQ/-1% YoY) despite inflationary pressures.
Netflix’s sudden pivot in subscriber reporting, opting to do away with the reporting metric, has raised eyebrows. However, the move may signal a maturing business profile, as subscriber growth slows and the company explores new opportunities in the advertising market. The ad-supported tier has shown significant growth, with double-digit increases in the past three quarters. eMarketer projects a sustained growth in digital ad spending, further highlighting the potential for Netflix in this area.
Despite the reporting change, Netflix remains a clear leader with an 8.1% market share in March 2024 (+0.3 points MoM/+0.8 YoY). The overall streaming industry also continues to gain traction, with a market share of 38.5% (+0.8 MoM/+4.4 YoY).
Netflix’s management has projected a promising FY2024 revenue guidance of +14% YoY, while raising its operating margin guidance to 25% (+4 points YoY). The company’s strong balance sheet, with a net-debt-to-EBITDA ratio of 0.58x in the latest quarter, further underscores its financial strength.
The recent stock price pullback presents an opportunistic entry point for investors. Netflix’s current valuation, with a FWD EV/EBITDA of 23.95x and FWD P/E of 30.55x, reflects the moderation in its growth trajectory. However, the company’s premium over sector peers is justified by its inherent profitability and projected expansion in margins.
Based on the LTM adj EPS estimates and 1Y P/E mean, Netflix is still trading above our fair value estimate of $458, with a +21.1% premium to current levels. However, the consensus raised FY2026 adj EPS of $26.24 suggests an excellent upside potential of +50.2% to our long-term price target of $834.10.
With its attractive long-term risk/reward ratio, attractive valuations, and continued dominance in the streaming industry, Netflix emerges as a buy. Interested investors should monitor the stock’s movement before adding at its previous support levels of $480s for an improved margin of safety.
