Netflix stock (NASDAQ:NFLX) has rallied by about 12% over the last week. There are a couple of trends driving the recent gains. Firstly, the broader S&P 500 has done well over the last week, rising by over 6%, as the Federal Reserve raised interest rates by just a quarter percentage point, in line with market expectations, while hopes of a ceasefire between Russia and Ukraine also helped market sentiment. Now Netflix stock outperformed last week, given that it had taken a beating, falling by as much as 45% year-to-date as of early March, driven by its slowing subscriber growth over Q4 2021 and a weaker than expected subscriber additions outlook for Q1 2022.
There have been other positive developments for Netflix as well over the past week or so. The company is implementing a new price hike in the United Kingdom and Ireland, raising prices by 10% on its standard plan and by almost 15% on its premium ultra-high-definition plan. The price rise comes just about 15 months since the last increase. Separately, Netflix is also taking steps to crack down on password sharing, as it tests a $2.99 surcharge that enables accounts in Chile, Costa Rica, and Peru to share Netflix subscriptions with two other people who live outside their households. These sub members can have their own user IDs and passwords, and personalized recommendations. The move could help the company a bit with monetization, helping profit margins although it runs a risk of not being able to convert sub members into more lucrative standalone members.
Overall, we think that Netflix stock remains a good value at its current level of about $380 per share. Netflix should continue to grow revenues at double-digit levels going forward driven by its deep content pipeline, strong pricing power, and high levels of customer loyalty, with the company seeing the lowest levels of churn in the streaming business, despite relatively frequent price increases. At its current market price of $380 per share, Netflix stock is at levels last seen around early 2020, prior to the global Covid-19 pandemic. However, Netflix has made much progress since then, growing its subscriber base by close to 33% since the end of 2019 to about 222 million users, while also growing its EPS by over 2.5x. Netflix’s valuation multiples are also compelling. The stock now trades at just about 34x projected 2022 consensus earnings and about 27x 2023 consensus, down from levels of over 90x prior to the pandemic. We remain positive on Netflix stock, with a price estimate of $522 per share, which is about 33% ahead of the current market price. See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix.
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