Netflix’s (NFLX) stock price has continued to do well this year, soaring to a record high of $720. It has jumped by over 348% from its lowest point in 2022, making it one of the best-performing media companies on Wall Street. In contrast, companies like Walt Disney, Warner Bros. Discovery, and Paramount Global have had negative returns.
Simple and predictable business
Netflix’s share price has done well because of its growing market share and simple business model compared to other media companies.
Warner Bros owns its MAX streaming service and many slow-growing legacy media brands like CNN and Cartoon Network, while Paramount owns Paramount+ and slowing companies like Smithsonian, Comedy Central, and Nickelodeon.
Netflix’s simple business model makes it highly profitable and simple to predict since it makes money through subscriptions and advertising.
Over the years, the company has continued to grow its market share by adding millions of customers every quarter. And the competition that most analysts feared a few years ago has not materialized.
At the same time, Netflix has continued to evolve its business by adding new products like gaming and advertising. Its ad business brings in a new revenue stream and helps it lower customers’ subscription costs.
Netflix is still growing
The most recent second-quarter results show that its business is still growing by adding new solutions. Its revenue rose from $9.3 billion in last year’s second quarter to over $9.55 billion, a 19% increase.
The company is also making more money for each paying customer in the United States and Canada, where the average revenue per member rose from $16 to $17.17. This figure dropped in its other regions like EMEA and LATAM.
To understand Netflix’s growth, you need to look at its annual revenue figures. Before Covid, its annual revenue was over $20.2 billion. Last year, it made $33.7 billion, while its trailing twelve-month figure was $36 billion. This growth happened even after large conglomerates. like Disney, Paramount, and Warner launched their competing products.
Netflix has also emerged as a highly profitable company, with its annual profits rising from $1.86 billion in 2019 to over $5.4 billion last year. Its operating income also jumped to almost $7 billion.
Earnings ahead
The next important catalyst for the Netflix stock price will be its earnings, which will come out on October 17. These results will provide more colour on its business growth and profitability.
Analysts expect the numbers to show that its quarterly revenue rose by 14.4% YoY to $9.76 billion. Its forward guidance for the next quarter will be $10 billion, bringing the annual revenue figure to $38.7 billion.
These numbers show that Netflix’s revenue growth is slowing since its 2025 revenue is expected to be $43 billion, a 12% growth from its 2024 figure.
As a result, Netflix will likely soon reach single growth figures, transforming it into a value company, as we have seen with the likes of PayPal.
Valuation is stretched
Premium companies like Netflix, Mastercard, Netflix, and Visa always attract a premium valuation because of their big moat.
In Netflix’s case, its forward price-to-earnings ratio is 37, while its trailing figure is 45. These numbers are higher than the communication sector median of 18 and 20, respectively.
However, they are higher than some other Magnificent 7 companies, such as Microsoft, Google, and Meta Platforms. Meta has a forward P/E ratio of 27, while Google and Apple have 22 and 33, respectively, meaning that Netflix is fairly overvalued.
The company must continue growing its revenues and profits to justify the valuation.
Netflix stock price analysis
The weekly chart shows that the NFLX share price has been in a strong bull run for a long time. It recently crossed the important resistance point at $701, its highest point in November 2021.
The stock has remained above the 50-week and 200-week Exponential Moving Averages (EMA), meaning that bulls are in control.
On the other hand, it has formed a rising wedge pattern, a popular sign of a reversal. The Relative Strength Index (RSI) and the MACD have also formed a bearish divergence pattern.
Therefore, while the stock may have some more upside, there is still a risk for a big bearish reversal in the coming weeks. This reversal will likely happen after the company publishes its financial results on October 17.
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