From Morningstar: 2024-07-26 05:50:00

Netflix released its Q2 earnings, showing revenue growth, an increase of 8 million subscribers, and a high operating margin in the high 20s. The company is profitable with catalysts to keep revenue growth high in the near term. However, its valuation looks high and may not be sustainable.

Morningstar believes Netflix’s stock is overvalued compared to their fair value estimate of $500. They project high-single-digit annual revenue growth over the next five years with potential for margin expansion as international markets mature.

Netflix receives a narrow moat rating due to intangible assets and a network effect. Its early industry entry and subscriber base provide a competitive advantage that is difficult for competitors to breach.

Financially, Netflix is in good shape with a net debt/EBITDA ratio under 1.0 and strong cash flow expectations. The firm does not pay dividends but has a share repurchase program and flexibility for potential opportunities.

Risk and uncertainty around Netflix are high due to the evolving streaming landscape and increased competition. The company focuses on profitability, but rising prices and consumer options pose challenges in attracting and retaining users.

Netflix bulls highlight the firm’s hit shows, cash generation advantage, potential ad-supported subscriptions, and room for international growth. Bears point to increasing competition, the need for price increases for growth, and the uncertainty of creating appealing content consistently.



Read more at Morningstar: After Earnings, Is Netflix Stock a Buy, a Sell, or…