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Is Netflix a Must-Buy Tech Stock Down 10% from Its Highs?
Streaming entertainment and technology standout Netflix (NFLX) stock has climbed 400% off its 2022 lows and 75% in the last year to crush Tech’s 30%.
Netflix stock didn’t break out meaningful above its 2021 peaks and to new all-time highs until Q4 2024. Netflix has ripped 30% higher in the past six months vs. Tech’s sideways movement.
Wall Street has celebrated Netflix’s ability to grow its user base, raise prices, boost profits, introduce an advertising tier, and slowly expand into live entertainment and sports.
NFLX dropped 10% from its December records heading into its January 21 earnings release.
Should technology investors buy the Netflix dip, or is the streaming giant due for a larger downturn?
The Bull Case for Netflix Stock in 2025 and Beyond
Netflix changed entertainment and Hollywood forever. Netflix’s first-in-flight advantage, coupled with its big push into original content, helped it stay at the top of a growing pile of streaming TV companies that includes Disney (DIS), Apple, and Amazon.
Netflix took Wall Street’s growth and earnings-based selling to heart, revamping its business over the last few years.
Netflix started cracking down on excessive account sharing. More importantly, the tech company rolled out a lower-cost ad-supported subscription plan in the fall of 2022. Two years after it launched, Netflix said its advertising-based tier reached 70 million global users.
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Netflix said in November that more than 50% of its new sign-ups are for ad-supported plans in countries that offer the option. NFLX added 22.5 million paid subscribers in the first three quarters of 2024, averaging 16% YoY growth, to reach 282.72 million. This came after the streaming company closed 2023 with its best quarter since Covid shut down the country.
Netflix is successfully separating itself from a pricing standpoint, with its $6.99 per month ad-based plan coming in lower than Disney’s $9.99 ad plan, and solidly below its various bundling options with Hulu and MAX.
Disney said last week it had an estimated 157 million global monthly active users watching ad-supported content across Disney+, Hulu, and ESPN+ (125 million less than Netflix).
Netflix’s expansion into live sports (deals with the NFL and WWE), reality TV, blockbuster movies, and more have helped it keep and gain subscribers.
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Over 24 million people in the U.S. tuned in for each of Netflix's two Christmas Day games, according to Nielsen. Netflix has also been wildly successfully launching reality TV content and it is in the early days of video games.
Why Netflix Stock Soared to New Highs
Netflix posted a record-high operating margin of 30% in Q3 and grew its operating profit 52% YoY to $2.9 billion. NFLX grew its earnings by 45% last quarter on 15% higher revenue.
The streaming power is expected to boost its 2024 revenue by 15% and over 12% in 2025 to reach $43.71 billion—up $10 billion vs. 2023. Netflix’s projected growth also comes against 7% sales expansion in 2023 and 2022.
NFLX is projected to grow its adjusted earnings by 64% in 2024 and 19% in FY25 to $23.52 a share—nearly double its FY23 total—following 21% expansion last year.
Netflix’s recent EPS revisions stagnation lands it a Zacks Rank #3 (Hold). Still, Netflix’s overall EPS outlook for FY24, FY25, and FY26 have surged over the last year. Netflix’s earnings growth is a big reason the stock made a huge comeback after its 2022 tumble.
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Netflix shares have soared 1,660% in the last 10 years to 5X the Tech sector (Netflix skyrocketed over 51,000% in the past 20 years). More recently, NFLX has jumped 151% in the past five years to outclimb Tech’s 121%. This run includes a 75% 12-month surge vs. Tech’s 30%.
Netflix finally broke out meaningfully above its 2021 highs to new records in early Q4. The stock has dropped around 10% from its December peaks after it reached heavily overbought RSI levels.
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Valuation-wise, Netflix trades at over a 90% discount to its 10-year highs (50% below its 5-year) and at a 42% discount to its 10-year median at 34.8X forward earnings.
NFLX’s price/earnings-to-growth (PEG) of 1.3 represents 25% value compared to Tech even though Netflix crushed the Tech sector. Disney’s PEG marks a 32% premium even though Disney has climbed just 14% in the last decade.
What Might Happen to Netflix Stock After Earnings?
Starting in the first quarter of 2025, Netflix will stop providing subscriber numbers altogether. This came after the streamer stopped providing subscriber guidance.
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Netflix said the number has become less meaningful with its current offerings of multiple plans at various price points. Netflix will announce “major subscriber milestones” and focus more on earnings, margins, and other key financial metrics.
NFLX is attempting to find support near potentially key November levels (chart above). If the tech stock holds it ground here, it might be able to retake its 50-day moving average and break out to all-time highs if Netflix impresses Wall Street next week.
Netflix might also be due for a stock split at some point.
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