Is Netflix’s investment plot meandering towards an unhappy ending?

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Disney, the ‘Lion King’ parent, is worth more than twice the home of ‘Tiger King’

In a year that has seen widespread selling of technology stocks and long-time market leaders falling into bear territory, the woes of Netflix stand alone.

The growth outlook has weakened to the point that Netflix has cut hundreds of jobs and changed its tune on two long-standing principles: it is cracking down on password sharing and will introduce an advert-based subscriber tier to the platform. That’s on top of a backdrop where high inflation has pushed the Federal Reserve to hike rates sharply, sparking recession fears and fuelling a rotation out of tech.

Estimates for Netflix are moving in the wrong direction. The consensus for this year’s revenue now stands at $32.4bn, which though representing year-on-year growth of 9.2% is down from the $34.1bn that was expected at the beginning of the year, according to data compiled by Bloomberg. The consensus for adjusted earnings has declined about 16% over the same period.

Yet the stock is getting ever cheaper. Netflix now trades at about 16 times estimated earnings, near the lowest since 2008 and a fraction of a 10-year average exceeding 80. Its drop in 2022 has been steep enough that the shares have joined the Russell 1000 value index following a rebalancing.

 

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