Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi MM, What are your views on NFLX, both in light of its fundamentals (including with respect to its pricing power and its earnings going forward) and its current chart/price action? Is it a stock MM would potentially buy? If so, what would you currently rate it and what sort of entry price would you be looking for in order to commence a position? Thanks, Darren
Hi Darren,
Netflix has been on an interesting journey over the years, it currently holds more than 20% of the global market, and closer to 25% in Australia. The sheer number of estimated subscribers illustrates the way that such subscription services are now regarded by many as necessity, almost like a mobile phone!
Interestingly everybody in the MM office uses NFLX while they have been cutting back on some others, a bit like an unused Gym membership. This certainly suggests NFLX has some pricing power up and to a point, and it’s one of the best positioned streamers in terms of being able to raise prices and retain subscribers. In many markets, it appears able to implement small/medium price hikes regularly and still grow. Also, its move into ad‑supported plans helps soften the blow for price‑sensitive customers.
However, even with password-sharing crackdowns, growth in mature markets like the U.S. is slowing due to saturation and rising competition. Hence the stock is now trading on 45x, only slightly above its 5-year average valuation while much of the market is far richer with the S&P 500 trading at all-time highs.
From a technical perspective the stock looks tired above $US1200 as it steadily underperforms the broader market.
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