Is the Netflix Inc (NASDAQ:NFLX) share price a buy at current levels?
Netflix’s Revenue Expectation
“Given it’s the first of the FAANG (Facebook, Apple, Amazon, Netflix and Google) to release its figures, it tends to be a closely watched event with implications not just for other streamers that got caught in its lower spiral following its first-quarter earnings release, but for other growth and tech-related companies.
Q2 2022 hedge fund letters, conferences and more
The expectation for the second quarter has been for another loss in subscribers by as much as 2 million, despite new seasons of popular titles that tend to entice both fresh and previous users to its platform. Forecasts are for earnings per share (EPS) reading of $2.96 for the first quarter that’s lower than what we saw for the same quarter last year. That estimate has been little changed over the past two months and as for revenue, Netflix is hoping for over $8 billion.
The numbers will be factored in for a fresh P/E (price-to-earnings) reading but based on current figures, Netflix put its valuation at far better levels compared to its historic average. Due to the plummet in price, strategic considerations will carry plenty of weight as investors and traders digest where it’ll be able to extract more growth and revenue. That includes how Netflix can tap into 'well over half of the world’s broadband homes' that have yet to pay for it and there are also the potential updates on gaming given the time spent by Generation Z and Millennials on other items like user-created videos, gaming, and music. While their release of Stranger Things was a big hit, I think for Netflix, the risk has always been that binge-watching of a series may mean that Stranger Things might have a harder time dominating the landscape, and investors won't be convinced.
That, combined with intense competition at a time when households across the globe are suffering from rising costs, has meant multiple streaming sources in a single home have gone from the norm during the pandemic to more of an exception. Any updates on its pricing model (especially as it remains the pricier option), the extent to which it will include an ad version, how they’ll go about account sharing to boost users, as well as any possible synergies following reports last month of a possible buyout or merger ideally directed at cutting costs will no doubt noted.
Netflix is expected to be more measured in terms of chasing further growth in what is the latest theme even if it’s no small streamer limited to a smaller war chest, as any gains in subscribers from these levels could be more artificial than natural depending on how they shift their model. Netflix cited 'sluggish economic growth, increasing inflation, geopolitical events' last time around, and it’s fair to say all three are on a worse footing today compared to a few months back.
Overall, it’s a majority buy rating with few daring to go into the ‘underperform’ and ‘sell’ categories, with a decent amount going for ‘strong buy’. It gets interesting with the price target, as although the average amongst them dropped from over $500 back in April when prices were around $350, the target has since dropped to below $300, and once more is still well above the current market price of below $180."
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