This video is the second in a series where we walk through the stock analysis of each of the
fang stocks we're going to cover Facebook, Apple, Amazon, Netflix, Microsoft and google
today we're going to talk about our stock analysis of Netflix. Netflix is one of the
world's leading entertainment services with 222 million paid memberships in over 190 countries
enjoying TV Series, Documentaries, Feature Films and Mobile Games across a wide variety of genres
and languages. Members can watch as much as they want, anytime, anywhere, on any internet connected
device. Subscribers can also play pause and resume watching all without commercials or commitments.
Netflix has received over 800 award nominations and over 250 awards for its original content.
Netflix revealed that it gained an additional 16 million subscribers in the first quarter of 2020
as billions of people around the world were forced into quarantine and social distancing.
Netflix single-handedly accounts for 10 percent of the downstream
internet traffic worldwide and it's willing to pay $20 million dollars per hour for original
content. First quarter earnings highlights... Netflix had 10% revenue growth in Q1 2022,
operating income of 2 billion was above the beginning of quarter forecast of 1.8 billion,
due to lower than projected content expenses. EPS was 3.53 versus 3.75 a year ago.
Here's a breakdown of Netflix's products and services segments... Domestic Streaming,
International Streaming, and Domestic DVD. Now let's break down these business segments in terms
of revenue in 2021. Domestic streaming made up 44% of revenue international streaming made up 56%
domestic dvd made up 1%. So let's talk about domestic streaming. United States and Canada
paid net additional memberships were negative 0.6 million, largely because of their price change,
which is in line with Netflix's expectations and is significantly revenue positive. A big focus
is how to monetize sharing the 100 million households using another household account.
This is a big opportunity as these households are already watching Netflix and enjoying
their service. Early last year, Netflix started testing different approaches to monetize sharing
and in March, introduced two new paid sharing features where current members have the choice
to pay for additional households in three markets in Latin America. While Netflix won't be able to
monetize all of it right now we believe it's a great short to midterm opportunity now let's
talk about the international streaming segment in central and eastern Europe there were negative
0.3 million paid net additional memberships or positive 0.4 million excluding the Russia impact
this slowed down the business in march coincided with Russia's invasion of the Ukraine.
Latin America paid net additional memberships totaled negative 0.4 million similar to recent
quarters. Netflix believes that this is due to a combination of forces including macroeconomic
weakness and their price changes dragged on their membership growth Netflix is making
great progress in the Asia Pacific where there's growth in a variety of markets including japan
India Philippines Taiwan and Thailand the paid net memberships were plus 1 million
over the long term much of Netflix growth will come from outside the U.S.. Traditionally U.S.
entertainment companies have viewed international as just an export market for U.S. content but
Netflix believes that the great stories can be made anywhere and loved by everyone! So they're
broadening their pool of creators that they work with increasing the variety of their programming
and better serving local tastes next we'll talk about the domestic dvd segment and the revenues
here have decreased by 24 in 2021 compared to 2020 but they're still hanging on despite the growth of
the streaming services surprise surprise so now let's take this all back to netflix the company
netflix is now producing films and tv in more than 50 countries with a high degree of integration in
the local entertainment ecosystem resulting in the creation of blockbusters from every region
in fact three out of their six most popular tv seasons of all time are non-english language
titles like squid game la casa del papa and all of us are dead these launched in quarter one of 2022
and have accumulated 561 million hours viewed in their first four weeks so an important focus for
them is working to extend netflix's lead in this area next let's take a look at revenue
growth and we can see from this chart that the average revenue growth year over year is about
25 next we want to look at eps growth and in this chart you can see that the average ups growth per
year is 34 the next chart shows free cash flow and the average free cash flow growth over the past
five years is negative five percent so now let's take a look at the business life cycle netflix's
primary revenue generator has been streaming memberships but with the streaming market becoming
increasingly saturated some imply that the company is at the maturity phase of its life cycle and is
approaching a crossroads netflix could experience either a rebirth or a slow decline as its services
face increasing competition next let's take a look at the five-year chart for netflix
and as you can see it's no longer the price is no longer following the trend line from its
september 2019 low and it's pretty clearly off the rails and who knows where it's going to stop
at this point with this latest earnings report it suffered some major losses in 2018 2019 and during
the coveted low in 2020 and now it's actually at a 70 drop from its previous all-time high where
it was also up 176 percent from its september 2019 low so it's had quite the ride quite a bit
of volatility over the past several years the gray lines are support and resistance lines where the
stock previously has had multiple reactions in the past so look for similar reactions at those price
points moving forward as you can see the price has already broken through several support lines
and nobody knows at this point when it's going to start rallying but we're watching the next support
level around 200 now when it comes to evaluation we look at over 12 different models to calculate
fair value of the stocks that we track fair value is the real or underlying intrinsic worth
based on 12 different models we believe netflix's average va fare value is 344 dollars leaving 60
upside potential from the current price from 36 analyst targets netflix's average target price is
347 dollars its 52 week low is 212 and its high is 701 here's what the bulls say about netflix
netflix's internal recommendation software and large subscriber base gives the company an edge
when deciding which content to acquire in future years netflix has also built
a substantial content library and that's going to benefit the company over the long term also
international expansion offers attractive markets for additional subscribers netflix has a narrow
economic moat based on intangibles resulting from the use of big data stemming from their massive
worldwide subscriber base according to warren buffett an economic mode is a distinct advantage
a company has over its competitors which allows it to protect its market share and profitability
the average analyst target price is 427 well over the current stock price 10-year revenue growth is
25 and eps growth is 43 netflix has a sufficient margin of safety and warren buffett actually
recommends buying stocks at a 40 discount from their fair value price to account for potential
calculation errors and unknown factors next let's take a look at what the bears are saying about
netflix netflix continues to burn billions of dollars of cash to create its original content
with no end in sight the level of competition in the us and internationally is increasing and will
continue to do so over the future let's take a look at this share of total ustv time for example
and you can see how other streaming services have grown by 1.8 percent disney plus has grown by 0.8
which is nearly double what it was previously and netflix grew by only 0.6 percent and this
was between may 2021 and february 2022. disney plus launched its own branded subscription video
on demand service in the second half of 2019 plus you have peacock amazon prime apple tv plus hulu
hbo max and many others the need for increased content and marketing spent outside of the us
will limit the rate of margin expansion for the international segment and their debt to
equity ratio is over 114 percent and we prefer this to be under 40 per warren buffett's advice
okay so we've gone through a lot of information in our stock analysis we went through what the
bulls think what the bears think but you guys might be wondering what do we think
we currently own netflix stock and we added to our position especially when it dropped
the 35 after the most recent earnings report while we agree with some of the points that
the bears are making we still like netflix as a long-term investment and we're excited
about the international growth potential that we talked about that lies ahead in the future for it
with the addition of competitors like disney plus especially in other streaming services
we did decide back when disney plus was first launching we did decide to reduce our overall
planned allocation for for netflix just because of those competitors specifically disney coming up
and then as we went through how fast disney plus is growing that kind of just makes our point yeah
amber and i do personally like netflix we like disney plus too watching that original content
um and we do watch it as often as you can with three kids and we have followed it since you could
order a little bit yeah that's right it was funny when we were doing the research for this video
we were reminiscing about the dvds and how that was originally how netflix started and
we actually started off with that you know when they first started in dvds all all day long two
of them at a time so it's funny to see how parts come so it'll be exciting to see where it goes
the next 20 years yeah i agree to help our channel grow please do three things for us right now first
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and subscribe to our channel we would love to hear what you think about netflix do you already
own the stock and do you think that the netflix investors are on track or are they kind of missing
something be sure to check out our other stock analysis videos for companies like apple tesla
neo and alibaba also check out this video where we break down our top holdings in our million dollar
stock portfolio thanks so much for watching guys we'll see you later thanks guys see you next week