Netflix stock (NASDAQ:NFLX) has recently behaved like a growth stock with extraordinarily stretched multiples. As a result, when growth stocks dropped in November 2021 due to excessive inflation, Netflix stock (NASDAQ:NFLX) fell with them.
However, the streaming service has encountered its own set of challenges.
Market Analysis of Netflix Stock
Netflix controlled the streaming market for many years. However, competition has become more challenging, with competing services such as Disney’s Hulu and Disney+ and Amazon’s (NASDAQ:AMZN) Prime Video threatening Netflix’s dominance.
As a result, Netflix lost two-quarters of its subscribers. That was devastating for Netflix stock (NASDAQ:NFLX), putting it in a bind between growth and value.
Netflix, aware of this, has begun establishing short-term targets to re-accelerate revenue growth. Given that it is no longer simple for the corporation to recruit new customers, it will instead concentrate on monetizing its current subscriber base.
Initiatives such as a paid “sharing” option and a lower-cost ad-supported plan have the potential to bring in more money from tens of millions of families.
Paid sharing is only offered in a few Central and South American countries. Netflix has said that it will not expand this option to other parts of the globe until it evaluates how paid sharing performs in other areas.
Netflix’s ad-supported version will cost between $7 and $9 per month and will have a four-minute commercial break after every hour of programming.
Such measures have given investors optimism who had become doubtful about the company’s capacity to continue developing its business, particularly given its already drastically discounted price.
A Series of Improvements
Compared to the broader market, Netflix stock (NASDAQ:NFLX) rose nearly 10% in one month, while the S&P 500 fell 8% during the same period. In 2022, however, Netflix stock (NASDAQ:NFLX) has dropped nearly 60%.
Netflix’s recent climb has been fueled in part by a slew of Wall Street upgrades for the company.
Netflix was recently upgraded from neutral to outperform by Atlantic Equities, emphasizing the potential of the company’s new ad-supported tier.
According to Hamilton Faber, advertising sales will generate $6.7 billion over the next three years. He also forecasts a monthly average revenue per user (ARPU) of $26. In contrast, Netflix’s current ARPU in the United States is $15.95.
Netflix has a price objective of $283 at Atlantic Equities, implying a 15% gain over the next 12 months.
Even though 2022 will be remembered as the year when Netflix lost users for the first time, the streaming giant remains an excellent company.
Netflix’s solid fundamentals do not deceive. Over the last decade, Netflix has steadily increased its earnings per share. In particular, 2018 marked a positive turning point.
Finally, Netflix’s 60% year-to-date decline has made its valuation appear much more appealing. Netflix’s earnings yield (the inverse of the price-to-earnings ratio) is 4.8%, a significant improvement from the previous decade’s yield of between 0.3% and 1.1%.
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