r/valueinvesting
Netflix still not a value investment
Author questions NFLX's 26x PE valuation despite growth, planning to sell half the position as it lacks a strong value thesis.
- One-time WB termination fee provides a financial cushion.
- Strong management team and growing ad revenue.
- Acts as a safe portfolio buffer against AI market volatility.
- Valuation of nearly 26x PE is too high for 15% growth.
- Low implied volatility (IV) makes selling covered calls unattractive.
- Lacks a strong fundamental value thesis beyond 'it's down from ATH'.
Hey community,
Always appreciate y’all’s thoughts and discussions. I’m looking at NFLX. Although it’s significant down from its ATH but looks like it’s growing roughly 15% and at a multiple of almost 26. I had bought 100 shares at 90 CB so I’m down.
Kinda funny my thesis was really just that it’s down from its all time highs so it must go up. I’m learning though so nothing burger losing that money.
That being said I know people here always say that forget about what cost basis you bought a stock. If starting from today would I buy 100 shares of NFLX. I think my answer is no. So I’m thinking of dumping 50 shares because starting from today I’d be willing to buy 50 shares. I could decide to sell a call against my 100 shares but the IV on NFLX just ain’t there to make it worth it.
Would appreciate if y’all can give me a bull case on it. My bull case is pretty much the one-time WB termination fee, a good management, and strong growing their ad revenue. Also, it could act as a “safe” cushion of my portfolio in case the AI frenzy send the market down. But I kinda doubt that justifies a multiple of 25.
Stick to index funds
I think the bear case is simple, competition is absolutely brutal, the prices are really a race to the bottom for subscriber growth, but competition means that Netflix also needs to continue pumping out premium content. Netflix is still growing revenue but they have reached the stage of a mature company. The revenue growth is going to come from advertisements and raising subscription prices, but it's a delicate balance because you can't add infinite commercials, or subscription price hikes. I don't think this is necessarily a bad thing, but means the days of 20% gains after earnings touting subscriber growth are probably gone, and it's entering it's mature phase.
What I like about Netflix is adding live events, and the add growth. I think that'll allow Netflix to continue building revenue growth, even if it's not as explosive as it once was.
The fact Netflix dodged the bullet on WB trainreck, is something of it itself. Without getting into too much details, Netflix, is a 1 trillion Dollar market cap entertainment company. In 3 -5 years, they will be the only game in town. The share is down and quite rightly as the market price in uncertainty and lack of clarity for the next leg catalyst.
Just under a 3x from today’s market cap in 3-5 years. Not going to say impossible but that’s a lot of new subscribers.
It doesnt have to come from subs though. They started ads and live events, NFL deal on netflix, ad revenue is still new and people are not sure if it'll work. But ultimately if you compare NFLX to all other competitors, they win against them on all levels. Especially on debt, NFLX is the streaming platform and are gonna be very hard to dethrone. The global viewership transition from cable to streaming is still far from over, the same way internet is not yet widely accessible for over 20% of population. Streaming accounts only for 48% of viewership, and 2 years earlier it was at 43%. I wouldn't say NFLX is a great buy right now, because there's a lot better stocks to buy rn instead, but it's a no brainer if someone just wants a good stock to hold for the next decade or so.
Just alot of volatility in the market these days. If they maintain current growth you will be fine eventually. You will rarely if ever time the bottom my guy
Your bull case is a short term mindset. Do you believe that Netflix will continue to become a staple in the media landscape and grow/compound for the next 20, 30 years? If so, then a 10-20 dollar swing in share price will look like a blip in the radar in a decade.
Its the signal to buy in after seeing this comment.
Just keep buying and hold. Everyone who bought this year is still in the red. Eventually some good news will come or they will have a blowout quarter and everyone will be looking to buy in again.
OP just stick to index funds.
Ok
I can’t suggest what to do with this - as I already went through what you’re going through and I fkd it up -
I bought Netflix at 120 back around 2009 - pricing jumped around a bit - then I read comments about their p/e being around 150 that they would never deserve that pricing level - so I sold them for a small profit and it was the only FANG stock I didn’t hold for 15 years.
I assume it’s split since 2009 - I don’t want to think about what I walked away from - but I’m too proud to buy back in -
I think it’s now a great company that is no longer the speculative move it was in 2009 - and it’s a better play than any of the TELCO’s when it comes to streaming and market share
A PE of 26 and a single year of 15% growth mean nothing in isolation.
Valuation is all about estimating the "area under the curve," meaning it's much more important that the growth and profitability is durable over a long period of time. Netflix should command a premium because they are relatively capital light, subscription based, have decades of experience demonstrating their moat, and some pricing power still left in the tank. There's good reason to assume they can continue to grow at attractive rates for a while, and possibly expand their margins as well. That 26x might look cheap in retrospect, as long as they continue to execute in the coming years.
I'm not telling you the stock is cheap or expensive, I'm saying that you need to weigh that 26x against more than just a single year of 15% growth.