With Growth Slowing, Is Netflix Stock Still A Buy?

Netflix (NASDAQ:NFLX) posted a mixed set of Q1 2023 results on Tuesday, with the company adding about 1.75 million new subscribers, slightly below estimates.  While revenue for the quarter rose by 3.7% year-over-year to $8.16 billion, it fell slightly short of estimates, impacted in part by foreign currency-related headwinds. Earnings fell by about 19% versus last year to $2.88 per share due to higher costs and slowing revenue growth.  Growth is expected to remain muted in the near term. For the quarter ending June 2023, Netflix is projecting revenue of $8.24 billion (3.4% year-over-year growth) and earnings of $2.82 a share.

Netflix stopped providing specific guidance on subscriber additions since the last quarter, noting that it would be focusing more on boosting its monetization. Now average revenue per member actually declined by 1% year-over-year due to currency headwinds and weaker price realizations, particularly in Asia where the company saw strong subscriber growth in countries with lower plan prices. However, Netflix is looking to better monetize account sharing, expanding the paid password-sharing option that it began testing last year to other markets including the United States during the second quarter. Under the offering, subscribers should have the option to pay an extra fee if they want to share their Netflix account with people they do not live with. Although the company could see some amount of initial subscriber churn due to the rollout, the move should help to eventually boost revenue. Netflix also appeared positive about the performance of its new ad-supported tier which was rolled out late last year in select markets, although it didn’t provide much specific data.

So, is Netflix stock still a buy at current levels? At the current market price of about $333 per share, Netflix trades at about 29x forward earnings. Although this is a relatively high multiple considering Netflix’s muted revenue growth in recent quarters, there is still reason to be bullish on the stock. Netflix is still guiding for double-digit revenue growth in the long run and the company’s cash flows are also expanding. For perspective, over Q1, Netflix has boosted its free cash flow guidance for the year to at least $3.5 billion, up from the previous forecast of at least $3 billion. Netflix is also boosting its capital return program, buying back about 1.2 million shares for roughly $400 million over the last quarter, with plans to increase repurchases over this year.  We remain marginally positive on Netflix stock, with a price estimate of $363 per share, which is about 10% ahead of the current market price.  See our analysis Netflix Valuation: Expensive or Cheap for more details on what’s driving our price estimate for Netflix. Also, check out the analysis of Netflix Revenue for more details on how Netflix revenues are trending.

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