Yahoo Finance Netflix Stock Hits 52-Week High: Should You Buy or Wait for a Dip?
Netflix NFLX shares surged to a 52-week high, reaching a peak of $715.66 to close at $704.32 on Sept. 19, in a remarkable display of market confidence. This milestone comes on the heels of several strategic moves and positive market indicators, leaving investors pondering whether it's time to buy the stock or hold their positions.
Over the past year, Netflix has seen an impressive 83.3% increase in its stock value, outpacing the broader Zacks Consumer Discretionary sector and many of its peers in the entertainment industry, reflecting the company's successful strategies to expand its content library, enhance user experience and grow its global subscriber base. The all-time high represents a significant achievement for Netflix, as it continues to lead the competitive streaming industry and adapt to the ever-changing entertainment landscape.
1-Year Performance
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NFLX’s Password Crackdown Pays Off as Content Pipeline Grows
One of the key drivers behind Netflix stock’s rally has been the company’s crackdown on password sharing. This initiative, though initially met with skepticism, has proven to be a masterstroke in converting freeloaders into paying customers. The company reported a significant uptick in new subscriptions, particularly in markets where the crackdown was implemented, demonstrating the effectiveness of this strategy in boosting revenues.
Content continues to be king in streaming wars and Netflix has been making strategic moves in this arena. The company has doubled down on producing high-quality original content, with several of its series and films garnering critical acclaim and widespread viewership. This focus on original programming has helped Netflix differentiate itself in an increasingly crowded market.
Netflix's Geeked Week 2024 concluded on Sept 19. The event, hosted by Joe Manganiello, was packed with exciting updates on the streaming platform's upcoming shows, from a special teaser for Squid Game Season 2 to the first look of Wednesday Season 2 besides Avatar: The Last Airbender, Black Mirror Season 7 and One Piece Season 2. Netflix has released the first official teaser trailer of the Devil May Cry anime series, which will be released on the streaming service in April 2025.
Netflix's international expansion strategy continues to show promise. The company has been investing in local content production in various countries, helping it penetrate new markets and diversify its subscriber base. This global approach could provide a buffer against regional economic fluctuations and open up new growth opportunities.
The Zacks Consensus Estimate projects substantial growth in paid subscribers, with total paid memberships expected to reach 290.4 million by the end of 2024, indicating an 11.6% year-over-year increase.
The company has also been exploring new revenue streams beyond its core subscription model. Netflix has ventured into mobile gaming, merchandise licensing, and even limited theatrical releases for some of its films. While these initiatives are still in their early stages, they represent potential avenues for growth and diversification of revenues.
Netflix’s Geeked Week included a slew of video game announcements. Blood Line: A Rebel Moon game is a Netflix exclusive and will be launched sometime in 2025. Monument Valley 3 lands on Netflix Games on Dec. 10, 2024. The first Monument Valley is available to play now and Monument Valley 2 will release on Oct. 29, 2024. Finally, Netflix has announced the arcade fighter Street Fighter 4 Champion Edition. Civilization 6’s mobile version will also join the list of other upcoming Netflix games, including the new Carmen Sandiego game from Gameloft, the recently delayed Tales of the Shire, and Lab Rat.
From a financial perspective, Netflix has demonstrated improved profit margins and cash flow generation. The company has transitioned from its heavy cash-burn phase and can now fund content investments through its operations, a positive sign for long-term sustainability.
For 2024, Netflix projects healthy revenue growth of 14-15%, indicating solid membership growth trends and business momentum. The development of an in-house ad tech platform, set to be tested in Canada and launched more broadly in 2025, further underscores the company's innovative approach to revenue generation.
The Zacks Consensus Estimate for 2024 revenues stands at $38.68 billion, indicating 14.7% year-over-year growth. The consensus mark for earnings is pegged at $19.08 per share, indicating a substantial 58.6% increase from the previous year. Netflix has also revised its full-year 2024 operating margin expectation to 26%, up from the prior forecast of 25%, attributing this improvement to an enhanced revenue outlook and ongoing expense discipline.
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Challenges Persist for NFLX
Netflix contends with robust rivals such as Disney’s DIS Disney+, Warner Bros. Discovery WBD-owned HBO Max, Peacock, Paramount+, Apple’s AAPL Apple TV+ and Amazon, potentially putting pressure on Netflix's growth and profit margins. Additionally, Netflix competes for consumer attention against traditional linear TV, YouTube, short-form content platforms like TikTok and the gaming industry.
The company's ability to maintain its leadership position in this crowded field will be critical to its long-term success. For third-quarter 2024, Netflix expects paid net additions to be lower than the year-ago period, which had the first full quarter impact from paid sharing.
From a financial perspective, the recent surge in Netflix's stock price has led to expanded valuation multiples, potentially limiting future upside for investors. The company's forward 12-month sales multiple of 7.2 exceeds its five-year median of 6.34, indicating that the stock may be trading at a premium to its historical valuation. Moreover, this multiple surpasses the Zacks Broadcast Radio and Television industry's forward earnings multiple of 2.76, suggesting that Netflix's valuation is stretched relative to its peers. The company's ability to maintain its upward trajectory in the face of these headwinds has left many market observers questioning whether this rally is sustainable.
Price-to-Sales (Forward 12 Months)
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Conclusion
Netflix's journey to its 52-week high is a testament to its resilience and adaptability in a dynamic market. While the company has shown strong performance and has several growth drivers in place, the high stock price may already factor in much of this positive outlook.
Netflix’s strong position in the streaming market suggests that it may be premature to abandon the ship. New investors should wait for a better entry point for Netflix, which currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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