In conclusion, I am of the view that Netflix is fairly valued, as its current valuation multiples are fair considering its future revenue growth outlook. But Netflix's top line expansion slowed to +18.8% in FY 2021, and the company is expected to expand its revenue by a relatively lower CAGR of +11.2% for the FY 2022-2026 period based on sell-side consensus forecasts. According to S&P Capital IQ data, NFLX managed to grow its revenue by at least +20% in every year between FY 2013 and FY 2020. However, Netflix's valuation de-rating is justified to a large extent by the company's more modest growth expectations in the next couple of years. Similarly, Netflix boasts much higher three-year and five-year average forward normalized P/E multiples of 62.5 times and 80.4 times, respectively. NFLX's three-year and five-year mean forward Enterprise Value-to-Revenue multiples were 7.7 times and 7.5 times, respectively.
The stock's current valuations are below historical averages. Netflix currently trades at consensus forward next twelve months' Enterprise Value-to-Revenue and normalized P/E multiples of 5.6 times and 35.1 times, respectively as per S&P Capital IQ data. In view of Netflix's poor stock price performance on both an absolute and a relative basis in early-2022, it is worth doing an assessment of NFLX's current valuations to see if its shares are undervalued. In summary, NFLX's Q1 2022 management guidance disappointed the market, and this justifies the company's significant share price drop in January 2022. The company also mentioned in its fourth-quarter Shareholder Letter that the stronger-than-expected US dollar is expected to have a "two percentage point negative impact on our 2022 operating margin," as it generates "60% of our revenue outside of the US." Netflix highlighted in its Q4 2021 earnings call on Januthat it would have achieved a relatively higher +14% revenue growth on a constant currency basis. In contrast, sell-side analysts were initially expecting Netflix to generate better sales of $8.1 billion and deliver a higher operating profit margin of 25.0% in Q1 2022, according to S&P Capital IQ data.Īpart from weaker-than-expected subscriber growth, the strengthening of the US dollar also had a major impact on Netflix's lower-than-expected topline and profitability guidance for the first quarter of this year. Secondly, Netflix's Q1 2022 revenue and operating margin guidance were below market expectations.Īs disclosed in its recent quarterly Shareholder Letter, NFLX forecasted that it will expand its revenue by +10.3% YoY to $7,903 million in the first quarter of the current year, and witness a contraction in its operating profit margin from 27.4% in Q1 2021 to 22.3% in Q1 2022. NFLX's Q1 2020 net subscriber additions of 4.0 million were also better than the company's Q1 2022 guidance.įurthermore, Netflix's expected Q1 2022 net subscriber additions of 2.5 million were significantly lower than the Wall Street analysts' consensus estimate of 5.9 million, as per S&P Capital IQ data prior to the release of the recent management guidance. Netflix's actual net subscriber additions for Q4 2021 amounted to a much higher 8.3 million, which was below the company's earlier guidance of 8.5 million. There are two key reasons for the substantial drop in Netflix's stock price in January.įirstly, NFLX guided in the company's Q4 2021 Shareholder Letter released on Januthat it expected to achieve net subscriber additions of 2.5 million in the first quarter of 2022, and this was very disappointing. NFLX's Share Price Performance In January 2022 Netflix's Year-to-date 2022 Stock Price Performance The large part of NFLX's share price correction occurred in January 2022, where the company's stock price dropped by -28.5% in comparison with the S&P 500's -5.8% decline in the previous month.
During the same period, the S&P 500 decreased by a modest -7.2%. Year-to-date in 2022, Netflix's shares fell by -35.1%. After reviewing the company's valuations and financial outlook, I view Netflix's shares as deserving of a Hold rating with my expectations that the company's shares will move sideways in the short term. I think that Netflix's share price drop in January is no surprise given its below-expectations Q1 2022 management guidance.
I focus my attention on Netflix's recent share price drop in this latest update. I discussed about NFLX's 2022 outlook in my prior Januarticle. I continue to rate Netflix, Inc.'s shares ( NASDAQ: NFLX) as a Hold. Mario Tama/Getty Images News Elevator Pitch
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