✔️ 2022-09-05 12:55:12 – Paris/France.
- The actions Netflix have racked up losses of around 60% since the start of the year. Much of this decline can be attributed to the abysmal first quarter results.
- Even with significant challenges ahead, NFLX now trades at more modest multiples and still has strong fundamentals and good long-term prospects.
- When comparing the performance of stocks Netflix relative to the S&P 500, September has tended to be a bad month for the giant Streaming.
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(Learn more about the MavenFlix: Netflix Has Stock found his way back north?)
A long-term projection first
Taking into consideration Netflix (NFLX) – Get Netflix Inc. Report stock, I think it makes more sense to take a long-term view rather than looking for short-term trading opportunities. With that in mind, I still think that Netflix remains a good long-term stock to own. That's thanks to the company's strong business fundamentals and relatively cheap pricing. NFLX currently trades at 21x next year's earnings, 85% below the stock's historical average (dating back to 2009).
Why stocks Netflix did they sink so deep? In the first quarter, the giant of Streaming fell around 40% after posting terrible earnings. It reported a sequential net loss of 200 paying subscribers, while market expectations were for a net addition of 000 million subscribers.
In the second quarter, however, analysts overcorrected on the downside. The Wall Street consensus caused the giant of the Streaming 2 million subscribers. And even if Netflix reported the largest user loss in history – approximately 970 users – the loss of subscribers was not as severe as the market had predicted.
The last two earnings reports have shown that it is no longer so easy for Netflix to attract new users to its platform. Thus, the company's near-term focus shifted to reaccelerating revenue growth (rather than user growth) by improving monetization of its existing user base.
That is why Netflix explore paid sharing options. This is also why Netflix plans to roll out a lower-cost ad-supported plan, through which it hopes to draw additional revenue streams from tens of millions of households.
September tends to be seasonally low
In the short term, September has tended to be seasonally weak for Netflix. I use the table below to show how the actions of Netflix generally behave throughout the year. This chart illustrates the stock's outperformance and underperformance Netflix relative to the S&P 500, by month, over the past decade (otherwise known as “seasonality”).
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Netflix has jumped almost 500% since 2016. And since this year, January has produced by far the best returns – while April has produced the worst. One explanation for this trend could be linked to the holiday season.
In recent years, not taking into account 2021 and 2022, Netflix generally beat expectations in the December quarter and as a result saw its shares soar. In 2017, 2018 and 2019, for example, stocks soared 13%, 40% and 26%, respectively, after NFLX posted successive record growth in the fourth quarter.
Also note that in July and August, the actions of Netflix are also trending higher, likely in anticipation of major fall season catalysts, such as new content releases.
In September and November, the actions Netflix tend to perform less well, likely due to information sales forces acting after earnings reports. There is also a theory that stocks typically fall ahead of the holiday season as traders offload their holdings to avoid significant risk when markets are closed.
The essential
The action Netflix managed to generate bullish sentiment after its second quarter results. Many investors saw an attractive opportunity to buy stocks Netflix with a considerable discount.
Even though I still believe that Netflix is the type of stock to hold for the long term, the current challenges around near-term growth recovery should put some pressure on stocks Netflix, especially since the macroeconomic context is still unstable.
The “market performance” consensus among Wall Street analysts signals skepticism about a sharp turnaround for the company.
Among the many skeptics, I choose Oppenheimer analyst Jed Kelly to sum up the experts' caution. He says there is short-term upside concern for shares of Netflix, which could be affected by the increase in churn. This turnover may be due both to the strong competition between the platforms of Streaming and general inflationary pressures, which cause consumers to slow down their discretionary spending.
Explore more data and charts
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(Disclaimer: This is not investment advice. The author may have one or more stocks mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence editorial content. Thank you for supporting MavenFlix)
SOURCE: Reviews News
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