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Netflix reported earnings last week and the stock jumped almost 10%.
A big reason for the rally was that Netflix said it can bring in $3 billion in free cash flow in 2023, almost double last year's figure of 1.6 billion.
Free cash flow is a key metric here because Netflix earnings account for content costs on an amortized basis.
In other words the cost of content gets written off over time. That means earnings are reported much higher than free cash flow which records the actual cash spent.
So Netflix’s projection for 3 billion is a significant declaration that the company can grow whilst still managing content spend.
The news sent shares up to 343 dollars giving the company a market cap of 155 billion.
And with 6 billion in cash and 14.4 billion of long term debt, the enterprise value is roughly 163 billion.
Revenue over the last 12 months is 31.6 billion and net income was 4.5 billion meaning the company is valued at 5.2 times revenue or 35 times earnings.
And based on the company’s guidance, the company is valued at 54 times next year's free cash flow which is a much more reasonable valuation than it was previously.
There was also good news on subscriber numbers which jumped to 231 million and positive signs from the introduction of paid ads.
Despite this, an investment in Netflix involves some risk. With so many rivals competing for attention, it's still not clear how good a business streaming media is going to be.
The recent rally is based on the idea that Netflix can nearly double free cash flow. But the company still needs to execute on that figure.
Meanwhile, CEO Reed Hastings just stepped down and is being replaced by the duo of Ted Sarandos and Greg Peters. There aren’t many examples of successful companies being run by dual CEOs.
For those reasons I’ve decided to give Netflix a bearish rating. Im not convinced the company has enough growth left to merit the high valuation multiple.
But these are my personal opinions, not financial advice. And I hold no position in the stock.
#stocks #investing #overlookedalpha #stockmarket #netflixstock
Netflix reported earnings last week and the stock jumped almost 10%.
A big reason for the rally was that Netflix said it can bring in $3 billion in free cash flow in 2023, almost double last year's figure of 1.6 billion.
Free cash flow is a key metric here because Netflix earnings account for content costs on an amortized basis.
In other words the cost of content gets written off over time. That means earnings are reported much higher than free cash flow which records the actual cash spent.
So Netflix’s projection for 3 billion is a significant declaration that the company can grow whilst still managing content spend.
The news sent shares up to 343 dollars giving the company a market cap of 155 billion.
And with 6 billion in cash and 14.4 billion of long term debt, the enterprise value is roughly 163 billion.
Revenue over the last 12 months is 31.6 billion and net income was 4.5 billion meaning the company is valued at 5.2 times revenue or 35 times earnings.
And based on the company’s guidance, the company is valued at 54 times next year's free cash flow which is a much more reasonable valuation than it was previously.
There was also good news on subscriber numbers which jumped to 231 million and positive signs from the introduction of paid ads.
Despite this, an investment in Netflix involves some risk. With so many rivals competing for attention, it's still not clear how good a business streaming media is going to be.
The recent rally is based on the idea that Netflix can nearly double free cash flow. But the company still needs to execute on that figure.
Meanwhile, CEO Reed Hastings just stepped down and is being replaced by the duo of Ted Sarandos and Greg Peters. There aren’t many examples of successful companies being run by dual CEOs.
For those reasons I’ve decided to give Netflix a bearish rating. Im not convinced the company has enough growth left to merit the high valuation multiple.
But these are my personal opinions, not financial advice. And I hold no position in the stock.
#stocks #investing #overlookedalpha #stockmarket #netflixstock
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NewsTranscript
00:00 Should you buy Netflix stock? Netflix reported earnings last week and the stock jumped almost
00:05 10%. A big reason for the rally was that Netflix said it can bring in $3 billion in free cash
00:11 flow in 2023, almost double last year's figure of $1.6 billion. Free cash flow is
00:17 a key metric here because Netflix earnings account for content costs on an amortised
00:23 basis. In other words, the cost of content gets written off over time. That means earnings
00:28 are reported much higher than free cash flow which records the actual cash spent at the
00:33 time. So Netflix's projection for $3 billion is a significant declaration that the company
00:39 can grow while still managing content spend. The news sent shares up to $343 giving the
00:46 company a market cap of $155 billion. With $6 billion in cash and $14 billion of long
00:51 term debt, the enterprise value is roughly $163 billion. Revenue over the last 12 months
00:58 is $31.6 billion and net income was $4.5 billion meaning the company is valued at 5.2 times
01:04 revenue or 35 times earnings. And based on the company's guidance of $3 billion in
01:10 free cash flow, the company is valued at 54 times next year's free cash flow, which
01:15 is a much more reasonable valuation than it was previously.
01:19 There was also good news on subscriber numbers which jumped to 231 million and positive signs
01:24 from the introduction of paid ads. Despite this, an investment in Netflix involves some
01:29 risk. With so many rivals competing for attention, it's still not clear how good a business
01:35 streaming media is going to be. The recent rally is based on the idea that Netflix can
01:40 nearly double free cash flow, but the company still needs to execute on that figure this
01:45 year.
01:46 Meanwhile, CEO Reed Hastings just stepped down and is being replaced by the duo of Ted
01:51 Sarandos and Greg Peters. There aren't many examples of successful companies being run
01:57 by dual CEOs.
01:59 For those reasons, I've decided to give Netflix a bearish rating. I'm not convinced
02:04 the company has enough growth left to merit the high valuation multiple. But these are
02:09 my personal opinions, not financial advice and I've got no position in this stock.
02:14 For more detailed investing ideas, visit our website overlookedalpha.com.