Netflix stock has climbed 65% in the past year, but it’s off by more than 25% since early December. Though the stock recovered from its February lows, it dived again on Monday by almost 6% to just under $96, making it one of the worst-performing stocks in the S&P 500.
Good news not good enough for Netflix
Netflix is in a business that is rapidly changing and is thus hard to predict. Also analyst estimates for the stock currently range from $85 to $155 per share, and one analyst even believes the stock will reach $200 by 2019, says a report from Fortune by Lauren Silva Laughlin.
Netflix was the reason for about half the overall drop in TV viewing in the U.S. in 2015, said industry specialist Michael Nathanson of MoffettNathanson recently. This probably was good news for the streaming giant’s investors, but even this did not help much. In the report (via Variety), Nathanson predicted that Netflix’s overall streaming hours as a percentage of TV viewing will continue to rise to about 14% by 2020.
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
Netflix may have reduced American TV viewing, but not by much of a percentage. The report says total viewing dropped 3%.
“Currently, Netflix is a source of industry pain, but not necessarily a cause of industry death,” the analyst noted.
Expansion already priced in
Netflix is already huge in the U.S. market, so “slowing subscriber growth is possible if the U.S. market nears saturation,” stated FBR analyst Barton Crockett recently. Another risk is competition from other streaming providers, including Amazon Prime and Hulu. Netflix advocates are banking on the streaming firm’s growth potential outside the U.S, but many believe this to be already priced in the stock, the report says.
Crockett says the U.S. streaming service should be valued at $25 a share or a bit more than 25% of the company’s current stock prices. The remaining value, or roughly $72 a share, comes from the international business. Even the growth outside the U.S. is burdened with potential pitfalls. For instance, in Japan, YouTube and even search engines also run streaming services, and Google Play is much more popular than Netflix.
Netflix trades at nearly 370 times next year’s earnings, even after yesterday’s drop. The valuation makes some sense as the earnings are expected to quadruple next year, but if that doesn’t happen, investors may “tune the company out.”