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Meet the FAANG Stock That Has Quietly Outperformed Every "Magnificent Seven" Stock -- Except One. It Still Has Plenty of Upside, According to a Certain Wall Street Analyst.
Once upon a time, the FAANG stocks were all the rage. For the better part of a decade, Facebook (rebranded Meta Platforms), Apple, Amazon, Netflix(NASDAQ: NFLX), and Google (now Alphabet) were among the market's most consistent performers. Each company dominated its respective industry and provided a windfall for determined investors who stayed the course.
Well, Wall Street is a fickle mistress, and with the advent of artificial intelligence (AI), investors shifted their focus to the future. Most of the FAANG stocks made the transition to a new collective -- the now-vaunted "Magnificent Seven" stocks, a term that came into being in late 2023. This group is made up of Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, and Tesla.
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In an interesting turn of events, the one FAANG stock that was left by the wayside has outperformed all its FAANG peers and all but one of the Magnificent Seven stocks. If you guessed Netflix, you're right on the money.
Below, I'll look at what brought the streaming giant back from the brink, and why it's hitting new all-time highs.
Image source: Getty Images.
Like a phoenix from the ashes
Netflix was a pioneer in the streaming video market, laying the groundwork for all the competitors that came after. It has long been the undisputed leader in the field in terms of subscribers, and after years of negative cash flow and ballooning debt, Netflix finally turned the corner and made good on its promise of strong and consistent profitability.
After a pandemic-induced growth spurt, Netflix became a victim of its own success. The combination of decades-high inflation and tough comps sent fair-weather investors to the exits, and the exodus was dramatic. Between October 2021 and July 2022, Netflix stock shed 75% of its value.
Even as the stock price cratered, the business kept chugging along, with Netflix adding millions of new subscribers. Perhaps as importantly, the company continued to increase its revenue and earnings.
Over the past year, and without much fanfare, Netflix has quietly outperformed every FAANG and Magnificent Seven stock -- except Nvidia. That's a momentous accomplishment indeed.
The view from the cheap seats
As its growth slowed, Netflix made a couple of strategic decisions that paved the way for its success. At the risk of alienating long-term customers, the company announced a password-sharing crackdown, but its execution was brilliant. Netflix allowed users to add additional paid members for just $8, and the mass defection of subscribers many predicted never came to pass. The company also introduced a lower-priced tier that included advertising, which appealed to viewers on tighter budgets.
Those two decisions set the stage for future growth, and the results have been impressive. In the third quarter, Netflix generated revenue that grew 15% year over year to $9.8 billion, while its earnings per share (EPS) of $5.40 jumped 45%. The results were fueled by 5 million new paid subscribers, an increase of 14%.
It's worth noting that the results sailed past Wall Street's expectations, which were calling for revenue of $9.77 billion, EPS of $5.12, and subscriber additions of 4.5 million.
Despite Netflix's striking performance, the best may be yet to come.
Future growth drivers
Recent developments help illustrate that there's a long runway ahead for the streaming giant. And those opportunities extend beyond its base streaming business.
Earlier this month, Netflix revealed that its ad-supported tier had reached critical mass, with 70 million global users just two years after its debut. The company also noted that 50% of its new subscribers join its ad-supported plan, giving the company leverage with advertisers.
This is also helping to feed Netflix's pivot to live events. The recent boxing match between Mike Tyson and Jake Paul -- and the undercard with Katie Taylor and Amanda Serrano -- was the company's biggest live event to date. Despite some reports of outages, the match was viewed by 108 million live global viewers, making it the "most-streamed global sporting event ever," according to Netflix.
For an encore, Netflix has exclusive rights to two NFL games that will be played on Christmas Day: the Super Bowl LVII-winning Kansas City Chiefs vs. the Pittsburgh Steelers, and the Baltimore Ravens vs. the Houston Texans.
It was recently announced that Beyoncé will perform at the halftime show in the game between the Texans and the Ravens, performing songs from her latest blockbuster album, Cowboy Carter. The album received a record-breaking 11 Grammy nominations, the most ever for an album by a female artist -- so it's certain to drum up a fair amount of business for Netflix.
Netflix has outperformed nearly all its FAANG and Magnificent Seven peers, with Nvidia as the outlier. Given the magnitude of the competition, that adds to the company's already lengthy list of credentials. That leaves us with the quintessential investing question: Is Netflix stock still a buy?
In the wake of its third-quarter financial report, Wall Street has been scrambling to boost its price targets. The most notable comes courtesy of Pivotal Research analyst Jeffrey Wlodarczak, who maintained a buy rating on the stock while increasing his price target to a Street-high $1,100. For those keeping score at home, that represents potential upside of 23% compared to Thursday's closing price.
Despite the aforementioned technical issues during the boxing match, the analyst called it a "learning experience" for Netflix, suggesting it's unlikely to happen again. "Our view remains unchanged that Netflix has won the global streaming race, as evidenced by year-to-date results and raised guidance," Wlodarczak wrote in a note to clients.
Some investors might be put off by Netflix's frothy valuation, and with good reason. The stock is currently selling for 51 times earnings and 11 times sales, but that only tells part of the story. Wall Street is predicting Netflix will generate EPS of $23.77 in 2025. At that rate, the stock is selling for roughly 38 times forward earnings. While that's a clear premium compared to the overall market, that's an attractive price for a stock that's bested some of the biggest names in technology.
Don’t miss this second chance at a potentially lucrative opportunity
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Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $368,053!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,533!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $484,170!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
