Will Netflix Stock Recover?

Becoming the King of Streaming Services 

Today, Netflix has established itself as the king of streaming services, even among the emerging competition with the likes of entertainment moguls like Disney, HBO Max, and others. However, the path to becoming the king of streaming services was full of peaks and valleys. The origin story of Netflix can be traced back to 1997 when Reed Hastings and Marc Randolph launched the company in Los Gatos, California. 

While Netflix is still leading the back among streaming services, the company is now facing more competition. Increasing competition combined with the recent fall in Netflix stock has many asking what’s next for the company. What spurred this recent stock decline, and will Netflix be able to recover? 

Why Did Netflix Stock Fall?

So, what was the catalyst that spurred Netflix stock to tumble down into the trenches?

Well, it seems like the main culprit behind the streaming giant’s recent downfall was a slowdown in subscriber growth.

The numbers show that Netflix recently had its lowest year of subscriber growth since 2015. The company projects to add only 2.5 million subscribers in Q1 2022, which is down 4 million subscribers from Q1 2021. 

While subscriber growth is down, Netflix is still going strong with 222 million total monthly subscribers. However, facing steeper competition with the likes of Disney (DIS), which owns Hulu and ESPN, and other streaming services, Netflix may have to switch up its streaming strategy to attract more subscribers. 

With the company’s recent purchase of the gaming studio Night School, it does seem that Netflix is looking to attract a new consumer base and revenue stream through gaming. The company is reportedly looking to expand its gaming portfolio in 2022, and may even start to include franchises that did not originate on Netflix.   

How Low Could Netflix Stock Go?

On January 20, 2022, Netflix stock was sitting at around $508 per share. The next day, January 21, 2022, the stock price experienced a sudden dip, sinking to just $397 per share. A few days later, Netflix stock hit a new low at $359 per share. Sitting in the high three hundreds, Netflix stock sank back to its pre-pandemic price level. 

It’s important to note that while Netflix has underperformed recently, the numbers the company achieved during the pandemic were conflated. Throughout the early parts of the pandemic, more individuals than ever before were at home for quarantine and had the ability to stream services like Netflix for more hours a day than they previously had been able to.

However, the conflated numbers caused by increased subscriptions and viewership during this period does not entirely explain Netflix’s poor performance as of late. 

So, how low could Netflix stock go in this cycle? While no analyst can definitely say how low Netflix stock will go, based on the slow subscriber growth, it seems like the stock price of Netflix could continue on a downward trend before being able to find its footing and finding growth once again.  

Will Netflix Stock Recover?

While numbers have been disappointing for Netflix during recent quarters in terms of subscriber growth, the company is still fairing well financially.

In 2021, Netflix earned $607 million, or $1.33 per share, in the fourth quarter. This was actually a 12% increase from the same time in the prior year. Overall, fourth-quarter revenue rose by 16% to $7.7 billion.

Despite this financial growth, Netflix decided to raise its monthly subscription price within the U.S. and Canada by roughly 10% during the first week of January 2022.

This price hike may not bode well for the company in the short term, with the U.S. and Canada being the largest consumer base for Netflix. Overall, the company may see some additional subscription drop-off in response to the recent price hike. 

It is impossible to definitively say that Netflix stock will recover. However, as the reigning king among streaming services, combined with the ability to maintain over 222 million active subscribers despite under performance, the outlook for Netflix is still bright.

As Netflix strives to bring more gaming opportunities to the platform and diversify its overall offerings, it seems like the company and its stock will be able to make a recovery over the long term.    

Is Netflix Stock Undervalued Now?

As of January 2022, Netflix has a market cap of $170.25 Billion, making it the world’s 70th most valuable company.

Due to the stock’s recent downtrend, Netflix stock appears very undervalued, sitting at only $380 per share.

With the price per share of Netflix hitting $690 in October 2021, the current price per share is a virtual steal, with the company still maintaining a strong holding in the streaming space.  

Indeed, a discounted cash flow forecast analysis projects Netflix share price at north of $500 per share.

Is Netflix Stock A Buy or Sell Now?

With the current price per share hovering around $380, Netflix is a screaming buy at the moment.

The company is looking to grow and diversify, enabling itself to tap into a wider consumer base. It won’t be a surprise to look back in 5 years and see NFLX stock recover to reach $700+ per share. It’s likely the reason Bill Ackman has made a billion dollar plus bet by scooping up more NFLX shares while it’s “on sale.”

Overall, despite the recent fall in share price, the Netflix company is still financially sound with clear paths for continued growth. These factors point toward Netflix currently being a good stock to buy as it is now undervalued. While it may take a few quarters or, worst case, years for the stock to recover, the revenue that Netflix is still able to make illustrates that the company still has a good potential for growth throughout the next several years. 

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