How Netflix Changed Investors’ Minds

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Netflix (NFLX) no longer delivers double-digit YoY revenue growth.

Yet, it has not hit that saturation point yet.

Membership grew 10.8% YoY, breaking its post-pandemic sluggishness.

But what’s really got shares moving and financial pros once again searching for this stock is one word – cash.

Source: SeekingAlpha

This singular metric could bring in a whole new set of investors.

Here’s why…

Netflix’s Business

Netflix is a global entertainment powerhouse, offering an impressive array of TV shows, movies, and documentaries across various genres and languages. 

What sets Netflix apart is its commitment to creating original content, providing subscribers with unique and captivating viewing experiences they can’t find anywhere else.

Netflix serves over 190 countries, delivering top-notch entertainment right to their screens, from thrilling dramas and action-packed movies to insightful documentaries and laugh-out-loud comedies in multiple languages.

97% of the company’s revenues come from streaming. However, there’s a small chunk still tied to its old-school DVD rental by mail business.

Financial pros began searching out the stock in earnest after the company’s latest earnings call.

Netflix announced another price hike and continued crackdown on password sharing.

They also acknowledged its test AI-generated episode was considered pure garbage.

Netflix was not immune to the recent writers’ and actors’ strike. The strikes delayed the production of original content, similar to the pandemic.

However, Netflix’s vast content library should cushion the blow. In the short term, it increases cash generated.=

Financials

Source: Stock Analysis

As Netflix grew, its revenue growth decelerated.

It now faces saturation issues in mature markets, similar to cable television.

However, its size helped the company improve margins, especially free cash flow.

This is a direct result of lower content spending, which is down $3.8 billion YoY for the 9-month period.

Source: Netflix Investor Relations

Debt remains stable at ~$14 billion, where it’s been for years.

This means any content added is paid for by cash generated.

However, there hasn’t been any effort to return cash to shareholders nor are there plans to do so anytime soon.

Valuation

Source: Seeking Alpha

Once trading at stratospheric valuations, Netflix is expensive, but not terribly so.

Its 29.5x price-to-cash flow is higher than Disney’s (DIS) 20.0x.

Yet on price-to-cash or price-to-earnings, it’s far more expensive than Paramount Global (PARA), Warner Brothers (WBD), or Comcast (CMCSA).

But there’s a good reason for that, which you’ll see in the profitability section.

Growth

Source: Seeking Alpha

Netflix’s growth slowed dramatically in recent years.

Yet, it’s done better over the last 3-5 years than DIS, PARA, and CMCSA.

WBD has the best growth metrics. Yet it carries $47 billion in debt, a massive load compared to the cash generated.

Profitability

Source: Seeking Alpha

The big reason financial pros love Netflix is its margins.

It’s got one of the best free-cash-flow margins and arguably the most sustainable one.

Plus, its gross and net income margins trounce its peers, as do its return on equity, assets, and total capital.

Our Opinion 9/10

We’re very bullish on Netflix in the short term. The strikes freed up cash the company could invest.

Plus, it carries very little debt.

And we love how free-cash-flow continues to climb year after year.

While we don’t expect it to double every year, even every five would be fantastic.

This is a company with plenty of challenges, but is the best of the bunch.

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