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Netflix has become a less attractive option for many investors, including billionaire Bill Ackman. The company’s stock price has dropped by more than 73% from its all-time high, reducing its market value to around $83 billion, down from over $250 billion at its peak. This raises the question: has Netflix become undervalued as it shifts its business strategy?
Netflix’s business model is straightforward. The company operates several platforms where users pay a subscription fee, averaging less than $14 per member. Netflix then uses this revenue to either purchase the rights to existing content or produce its own movies and series. This makes it relatively easy to estimate the company’s revenue and profitability.
For a long time, Netflix dominated the streaming industry. However, the market has become much more competitive, with new players like Paramount, Warner Bros. Media, Apple, Disney, Peacock, and Curiosity Stream offering similar platforms with different content.
Netflix’s stock price has been on a steep decline as investors reevaluate the company’s position. It has transitioned from being a growth stock to a value stock, meaning its rapid growth phase is slowing down. As a value stock, Netflix still holds appeal.
To put things in perspective, if we divide the market value by the number of active users, each customer is valued at about $373. If an average customer pays $12 per month, that totals $144 per year, giving Netflix a reasonable multiple of 2.59x. This suggests that while Netflix might not be a strong growth company anymore, it still represents good value.
Netflix is also shifting from a paid model to a freemium one, hoping to attract users who wouldn’t pay for the service otherwise. The risk here is that existing paying members might switch to the free version, which could impact revenue.
Looking at the daily stock chart, Netflix shares have been in a strong downward trend over the past few months. The stock took a significant hit after disappointing earnings results and has since dropped below the 25-day moving average, forming what appears to be an island reversal pattern.
In the short term, the stock price may continue to decline, possibly reaching the key support level at $150. However, in the long term, the shares are expected to rebound, with bulls likely aiming for a resistance level of $329.