Netflix Stock: Is It a Good Buy?
As we’ve collectively navigated the COVID-19 pandemic, we’ve sought comfort wherever we could find it — and we’re continuing to find a lot of it on Netflix. During the lockdown in the first quarter of 2020, the digital streaming service added 16 million new subscribers. Netflix’s stock price surged 27% over a 12-month period.
Nearly two years later, investors have reason to wonder if Netflix will remain a growth story. While 2021 ended on a disappointing note for the streaming service’s investors, Netflix is putting the pieces in place to finish 2022 on a more positive note.
A Market Leader, but Still on the Rise
Netflix added 4.4 million new subscribers in the third quarter of 2021, which was 900,000 above its projection of 3.5 million. The company set its sights high for Q4, anticipating growing subscribers by a whopping 8.5 million but delivering just 8.3 million. Although that was higher than analysts had predicted, news of slowing new-subscriber acquisitions rattled investors, resulting in a 20% drop in share price following the earnings announcement. While not the news Netflix hoped to deliver or investors wanted to hear, the addition of 8.3 million new subscribers brought the company’s total number of paid memberships to 221.84 million, which represents an 8.9% increase year over year. In addition, revenue was up 16.3% year over year and full-year revenue increased 19%.
At present, Netflix’s market cap, or estimated value based on its share price multiplied by the number of shares outstanding, is $176.07 billion.
An Intensifying Competitive Climate
Although adding nearly 13 million new subscribers in the second half of 2021 seems like good news, according to Nielsen, Netflix dropped from a 7% share of total U.S. television time in Q2 to 6% in Q3. What Nielsen terms as “other streaming” experienced a share increase from 8% to 9%, while YouTube, Hulu and Prime Video stayed the same and Disney+ dropped from 2% to 1%.
Netflix vowed in its Q3 shareholder letter that its goal was to improve its service as quickly as it could to gain a greater share of people’s time.
In it’s Q4 letter, Netflix acknowledged that new subscriber acquisitions hadn’t yet recovered to pre-pandemic levels. It attributed the slow growth to ongoing issues related to COVID and economic challenges people are experiencing in other nations within its global market.
Looking Ahead to Q1 2022 and Beyond: Subscriber Growth a Concern
In its Q4 2021 earnings statement, Netflix said its subscriber retention and engagement remain healthy, but it anticipates adding just 2.5 million subscribers in Q1 2022. Compared to Q1 2021’s 4 million adds, the news was alarming despite the company’s solid revenue growth. However, Q2 could be a better due to new content premiering in March. The hit program “Bridgerton” returns for a second season that month, and an original production, “The Adam Project,” will launch then as well.
Good To Know
Although Netflix had been slowed down by production delays related to COVID-19, the company is rolling out content at a fairly rapid pace — with good results. Netflix won 44 Emmys in the third quarter of 2021– the most for any single network or service in a season of TV, with “The Crown” and “The Queen’s Gambit” garnering 11 awards each. It also took the top spot for Academy Award nominations and wins in 2021, coming away with seven Oscars.
Netflix Stock: Buy, Hold or Sell?
Should you invest in Netflix, proceed with caution or hit the brakes? It’s quite possible that the struggling share price presents an opportunity for long-term investors. According to CNN Business, the consensus rating among 46 analysts is that Netflix is a “buy,” and they’ve forecast a median target price of $552.50. However, you might have to wait until at least the Q2 2022 to see much movement.
Although several competitors aim to challenge Netflix, it’s still a top contender in the rapidly growing digital streaming sector. On top of that, it’s investing in itself, making content bets that are likely to add value for consumers and investors alike.
Data is accurate as of Jan. 21, 2022, and subject to change.
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- Netflix. 2022. "Q4 21 Shareholder Letter."
- CNBC. 2021. "Netflix snags 7 awards, nearly doubling its all-time Oscars tally."