Netflix’s stock price has taken a beating over the past six months, shedding 22.7% of its value and falling to $92.68 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is now the time to buy NFLX? Find out in our full research report, it’s free.
Why Are We Positive On NFLX?
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
1. Global Streaming Paid Memberships Skyrocket, Fueling Growth Opportunities
As a subscription-based app, Netflix generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.
Over the last two years, Netflix’s global streaming paid memberships, a key performance metric for the company, increased by 15.7% annually. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.
2. EBITDA Margin Reveals a Well-Run Organization
Investors frequently analyze operating income to understand a business’s core profitability. Similar to operating income, EBITDA is a common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of profit potential.
Netflix has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 29.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.
3. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Netflix’s margin expanded by 15.8 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Netflix’s free cash flow margin for the trailing 12 months was 20.9%.
Final Judgment
These are just a few reasons why we think Netflix is a great business. After the recent drawdown, the stock trades at 23.9× forward EV/EBITDA (or $92.68 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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