Is Netflix a Buy, Sell or Hold?

If there is one company that can be termed a disruptor in the field of entertainment, it’s Netflix (NASDAQ:NFLX), which disrupted the streaming field and laid the groundwork for how the streaming industry largely looks like today. In that sense, Netflix also has a first-mover advantage.

Netflix has been a big gainer over the past decade or so. Over the past 10 years, the company’s share price has gained more than 1,500%. Recent uplifts have also been quite good. Over the past year, Netflix’s stock has gained more than 80%. So, the company remains solidly in the growth category.

Netflix’s shares don’t come cheap. Recently, they topped the $1,000 per share mark and continues to display momentum, as it is trading higher than its 50-day and 200-day moving averages.

Yet, the question remains of how far the stock can go, especially in the face of the AI boom gripping the market. How can this technology be accretive to the company’s growth? 

Live Shows Are On The Horizon

When Netflix founders were walking the streets of Santa Cruz, it seemed like a good idea to rent out DVDs as part of a subscription service. Funnily enough, the only reason the company launched a no penalty fees on late returns was because it had so much inventory in warehouses that it came up with the novel idea to use customers homes as storage areas. Back then the company was a hit and launched onto the public markets at $2 per share.

Netflix grew massively thereafter and scaled to over 200 million users worldwide but it was the 2020-21 era where it really launched to another level of success thanks to lockdowns. Not only is it the largest streaming name, but its model of producing original shows and curating third-party content set the standard for other services that came thereafter.

The company has made some notable changes to its platform over the recent past. The first was the crackdown on password sharing, which has seemingly paid off in spades. In the first three months of last year, Netflix added more than 9 million subscribers.

Another way to scale the base was to launch an ad tier for lower-budget customers, which turned out to be quite successful. Two years after the tier’s launch, it reached 70 million monthly active users.

Now, the company has a clear target in its sight, which is live TV. This is expected to help its advertising business, which is nascent compared to some of its peers. Live TV is dominated by sports, such as the Mike Tyson vs Jake Paul boxing event and two NFL games that pushed its subscriber growth upwards.

Last year, the company struck a deal with World Wrestling Entertainment parent TKO to stream live content and there’s potential for perhaps sister division UFC to join the fray too.

Netflix’s next sight is Formula 1, the popular sports racing circuit. The platform had already given a morsel to its viewers by introducing the series “Drive to Survive” on its platform. But this time, following the success of the series, the company is reportedly said to bid for the live broadcasting of F1 races.

The Role of AI for Netflix

AI has become pivotal in a lot of tech giant’s operations. Companies are increasingly leveraging this technology to stay ahead of the curve. In the streaming space, the use of AI is largely linked with the personalization of content. The theory is simple: show viewers what they want to see, which basically means that recommendations are personalized for users using AI.

Netflix uses AI to recommend movies and shows based on your viewing history. Traditional viewing models might not always give apt recommendations, so to form a bond with viewers, AI might be the only way forward. Netflix’s accessibility feature has also been successful through its investment in AI-driven closed captioning and language dubbing.

How Is Netflix Performing at the Moment?

Netflix reported in its fourth quarterly and fiscal year results for 2024 a 16% jump in its quarterly revenues to $10.25 billion compared to the prior year’s quarter. For the full year, the top line also ballooned by 16% year-over-year to $39 billion. This is likely the direct consequence of its global streaming paid membership count going up by 16%, coincidentally to 301.63 million.

The company is also strongly profitable. For Q4, Netflix’s operating income grew by 52% to $2.27 billion. For the full year, operating income topped the $10 billion mark for the first time (coming in at $10.42 billion).

The ad tier performed relatively well in the fourth quarter as well, driving over 55% of sign-ups in the ads countries. In addition, membership in its ads plan grew by nearly 30% quarter-over-quarter. The company also remains on track to sufficiently scale ad members in all the countries it offers the service this year. Right now, sustaining a healthy growth trajectory is far more important for Netflix than bursts of brilliance.

Is Netflix Stock a Buy, Sell or Hold?

Netflix stock is a hold if analysts price target of $1,066 per share is accurate because the share price is sitting very close by to that level.

For those who are not yet on board the Netflix freight train, it’s justifiable to be concerned because the downside is substantial given that intrinsic value is $838 per share.

Still, with a perfect Piotroski Score of 9 Netflix is a really hard stock to bet against, the fundamentals have been rock solid for a long time and continue to be so.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.