valiull google kalaunea
Andree Vandestreek
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Netflix (NFLX -1.36%) is the world's largest streaming platform for movies and television shows. According to the company's earnings report for the first quarter of 2024, it extended its lead at the top of the industry as its subscriber base grew to a new record high.
Unfortunately, investors sent Netflix stock plunging 9% immediately following the release of its Q1 results. They appeared to take issue with management's decision to cease reporting subscriber figures beginning in 2025. Broader stock market conditions didn't help, because the Nasdaq-100 technology index sank 6% last week, exacerbating Netflix's decline.
Netflix added 37.1 million subscribers during Q1 compared to the year-ago period, taking its total to 269.6 million. That was good for a 16% increase, which was more than 3 times faster than the growth the company delivered in Q1 of 2023, and it marked the fifth straight quarter of acceleration.
Two initiatives are responsible for the strong result. First, Netflix continues to crack down on password-sharing to monetize the estimated 100 million global households "borrowing" their subscription for free from a friend or family member. Second, the company is experiencing substantial growth from its new, cheaper advertising tier, which allows consumers to subscribe to Netflix for a reduced price in exchange for viewing ads during programming. (I'll discuss that in more detail in a moment.)
The accelerated subscriber additions led to a record $9.3 billion in revenue for the quarter, which was a 14.8% year-over-year boost. That also marked the fifth consecutive quarter of faster gains, and management's guidance suggests revenue could increase by an even more rapid 15.9% in the upcoming Q2.
Netflix also managed its costs very carefully during the first quarter, with operating expenses climbing by just 7.1% year over year. That allowed more money to flow to the bottom line, leading to an impressive 83.3% surge in earnings per share to $5.28.
Ad-tier sign-ups also grew by 65% compared to just three months earlier, which highlights how popular it has become with customers. It appears Netflix's plan to target consumers at the lower end of the income spectrum is an incredible success so far.
Investors might feel ad-tier sign-ups are a negative for the company because of the lower price point, but management has previously said they monetize at a similar rate to the $15.49 standard tier. In effect, advertising dollars are making up for the difference in price.
According to Statista, advertisers will spend $147.9 billion reaching audiences through traditional TV in 2024. Streaming represents around 38.5% of total TV viewing time in the U.S. at the moment, and it's steadily growing. Therefore, much of the ad spending with traditional media providers could eventually flow to platforms like Netflix as they grow their audiences, which is a huge financial opportunity.
Netflix currently accounts for just 8.1% of TV viewing time globally, and its share is less than 10% in every individual market. So it still has a small market share not only as a portion of overall TV time, but also in the streaming industry itself (despite being the largest player).
Netflix's 269.6 million subscribers places the platform comfortably ahead of Walt Disney's Disney+ streaming service, which comes in second place with 149.9 million. However, Netflix says there are more than 500 million smart TV households in its addressable market, so there is still a long runway for growth.
Financially speaking, the company believes its addressable opportunity is worth more than $600 billion across TV, movies, gaming, and branded advertising. Its strategy is to continue investing heavily in content to attract new subscribers, and it will spend around $17 billion on its slate this year, including a deeper dive into live sports programming.
Netflix will stream the Jake Paul vs. Mike Tyson boxing match in June, and the platform will also become the home of World Wrestling Entertainment (WWE) starting in 2025. The latter program will feature regular live events. The WWE deal with parent company TKO Group is rumored to be worth $5 billion over 10 years, and it could expand Netflix's audience thanks to the sport's dedicated and engaged fanbase.
As I touched on at the top, Netflix stock sank 9% following the release of its strong Q1 results. The company told investors it will stop reporting its subscriber figures from 2025 onward, and that can be interpreted as a sign that sluggish growth is on the horizon. However, management said the total subscriber number isn't important anymore because the platform has so many subscription options with different prices, which means translating subscriber growth into revenue growth is no longer straightforward.
The Nasdaq-100 sports a P/E ratio of 29.7 today, so Netflix stock will have to rise between now and the end of 2025 to keep pace with the valuation of the broader tech sector. However, Netflix tends to command a premium because of its dominant position in the streaming industry, its enormous addressable market, and the fact it's the only pure-play streaming service generating a profit.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends TKO Group Holdings. The Motley Fool has a disclosure policy.
I've been skeptical of Netflix (NASDAQ: NFLX) for years, but 2023 was the year I started warming up to the idea of finally buying. For one thing, I needed a few stocks to replace my long-term market-losing position in Walt Disney (NYSE: DIS), which I finally exited after the most recent rally. It's a late decision that cost me, as Netflix has been the obvious outperformer over the last year-plus since I put Disney on the chopping block.
In fact, much of the traditional media industry is a mess right now, with the exception of Netflix. Here's what finally pushed me over the edge to pull the trigger on Netflix -- even after the stock doubled in the last year.
As I've explained for years, despite being a Netflix subscriber, I could never bring myself to own a slice of the business itself because of a lack of profitability. Sure, Netflix has been showing GAAP net income for quite some time. But on a free cash flow basis (which includes the money paid for the company to create content, versus GAAP net income which amortizes this key expense over time), Netflix was decidedly unprofitable.
But that changed in grand fashion in 2023. As Netflix has grown up, it has turned highly profitable by all measures over the last year. Free cash flow is now being cranked out at an even higher rate than GAAP net income.
Of course, the market has taken note of Netflix's more profitable advance as well -- thus the big stock run-up, especially since the start of 2023. Shares now trade for a premium 50 times trailing 12-month earnings, or nearly 40 times trailing 12-month free cash flow. Surely it's too late to buy now, right?
Netflix's subscriber base continues to rise higher. This media business has fewer international border confines than the traditional U.S. TV business, and Netflix's steady investment over the years in a diverse set of content has positioned it well. Total subscribers grew 13% year over year in Q4 2023 to surpass 260 million.
The world is still a very large place, though, and Netflix still estimates its share of global screen time at just a single-digit percentage. Subscription pricing keeps rising too, and an ads business is now being built, putting Netflix on track to eventually become something resembling what traditional cable is today (except for the consumer ability to more carefully select what they want to watch at any given moment). Nevertheless, steady subscriber growth remains a key reason Netflix can sustain a low-teens revenue growth rate in the years to come.
Along the way, management has stated that it intends to continue gradually increasing those profit margins. On a free cash flow basis, 2024 is expected to yield a similar result to the $6 billion the company generated in 2023, owing to Netflix ramping up from a content production pause in the U.S. due to actor and writer strikes last year. Despite this near-term flattish outlook, however, Netflix remains a highly profitable business with ample cash to fund its expansion plans.
And shareholders are now being rewarded too. Netflix returned $6 billion of that cash last year via stock repurchases. That's another reason for optimism going forward, despite the rich valuation on the stock.
In all, the story has changed dramatically at Netflix, and what has emerged from the bear market of the last couple of years is healthy growth and a profitable media business. I plan on buying more Netflix stock as the year progresses.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
Netflix (NFLX) stock is notoriously volatile. And while some nimble traders have surely used NFLX's gut-wrenching swings to their advantage over the years, plenty of punters with less fortunate timing have just as assuredly had their faces ripped off.
90f70e40cf