Turning to Wall Street, Netflix has a Moderate Buy consensus rating, based on 23 Buys, seven Holds, and three Sells assigned in the past three months. Hence, the bottom line needs to meaningfully expand if shareholders are to actually see any cash returned anytime soon. Of these, $449 million has been allocated in new content, and $500 million to repay debt. Still, in the last four quarters, Netflix has generated $1.84 billion in operating cash flows. From just 4.3% in 2016, it is expected to reach 20% at the end of FY2021. The annual operating margin has been growing every year sequentially for quite some time now. The company knows this, and efforts to improve margins in order to sustain the continuously higher original content production expenses have indeed been achieved as Netflix scales. A significant improvement in margins is all that is needed, in the end, to justify its admittedly pricey forward P/E of 45.9. The truth is, Netflix does not necessarily need to rapidly grow its subscribers at this point. Is this rather worrying? Does this mean fears of a potential slowdown are finally starting to materialize? Maybe. The company expects Q3 revenues of $7.48 billion, implying year-over-year growth of just 16.2%. Despite these numbers, what rattled investors was management's guidance. Excluding a foreign exchange (FX) impact, ARM rose 4%, to be exact.Īs a result, Netflix's net income also expanded significantly, by 87.9% to $1.35 billion. Revenue growth was primarily supported by an 11% rise in average paid streaming memberships, and an 8% increase in average revenue per membership (ARM). Netflix's Q2 results were rather strong, with revenue increasing 19% year-over-year to $7.3 billion. Solid Growth, but Margins Need to Improve However, the risk which comes with the never-ending need to produce original content is likely to weigh Netflix down.
The company should start producing satisfactory free cash flow levels, and eventually return some of this cash through its stock repurchase program. (See NFLX stock charts on TipRanks)Īccordingly, Netflix's future remains rather bright. While such concerns translated to Netflix trading flat for around a year, the stock has recently reached new highs. Hence, investors may rationally speculate that Netflix's dominance shall fade, with subscription growth likely to stall moving forward. Examples of such services include Gaia (NASDAQ: GAIA), CuriosityStream (CURI), and FuboTV (NYSE: FUBO). In fact, niche streaming services have started to target very specific target groups to grab the market shares in these underserved markets. Major players in the industry like Disney (DIS), AT&T (NYSE: T), and Amazon (NASDAQ: AMZN), with their respective services of Disney +, HBO Max, and Prime Video, have saturated the industry. However, competition has been heating up lately. Having first-mover advantage certainly helped in establishing its dominant position.
With over 209 million paid subscribers (and multiple more viewers, including the households in this figure), Netflix has become almost synonymous with streaming services. It's reasonably safe to say that everyone is familiar with Netflix (NASDAQ: NFLX).
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