What’s Happening With Netflix Stock?

NFLX: Netflix logo

Netflix stock (NASDAQ:NFLX) has declined by about 68% year-to-date and currently trades at just about $190 per share. There are several factors impacting Netflix. Netflix lost around 200,000 subscribers over Q1, its first net loss of subscribers in about a decade, and projects another 2 million losses over Q2. While the decline is partly due to the fact that people are relying less on streaming services for their entertainment needs following the easing of Covid-19 restrictions, Netflix’s competitors appear to be gaining ground at its expense driven by lower pricing and fresh content offering. For perspective, Disney’s streaming operations added 7.9 million subscribers over the last quarter, while Paramount added close to 6 million subscribers across its streaming platforms over Q1. There might be still more headwinds for Netflix stock. The U.S. economy could be headed into a recession, as the Federal Reserve looks to hike interest rates at a more aggressive pace to tame surging inflation. Consumer confidence is also on the decline, as surging energy, grocery, and housing prices eat into household budgets. Although streaming may be a relatively small-ticket spend in the context of household budgets, the impact on Netflix is likely to be more pronounced as the company’s plans are among the most expensive in the streaming space, with its standard plan priced at $15.50, compared to just about $8 for Disney+ and $5 for Apple TV+.

We have reduced our price estimate for Netflix from $400 per share to about $320 per share, to account for the slower growth and competitive pressure the company is witnessing. However, our price estimate still marks a meaningful premium over the market price of about $190 per share. There are a couple of good reasons to remain optimistic about Netflix stock at current levels. Based on the current market price, Netflix stock trades at under 16x consensus 2023 EPS. This is a reasonable valuation in our view, given that despite the near-term headwinds, Netflix is looking to sustain double-digit revenue growth, via multiple avenues including through the lower-priced ad-supported plan and better monetization of shared Netflix accounts. Netflix is also looking to protect its operating margins in the interim, reiterating its 19% to 20% margin guidance for 2022, while noting that it intends to grow operating income at a quicker pace compared to revenues. See our analysis Netflix ValuationExpensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out on analysis on Netflix Revenue for more details on how Netflix revenues are trending.

With inflation rising and the Fed raising interest rates, Netflix has fallen 68% this year. Can it drop more? See how low can Netflix stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jun 2022
MTD [1]
YTD [1]
Total [2]
 NFLX Return -4% -69% 53%
 S&P 500 Return -6% -18% 74%
 Trefis Multi-Strategy Portfolio -3% -22% 207%

[1] Month-to-date and year-to-date as of 6/28/2022
[2] Cumulative total returns since the end of 2016

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