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Netflix (NASDAQ: NFLX) has been on a strong bullish trend in recent months as the company undergoes a significant turnaround. The stock reached a high of $332 on Friday, its highest point since December 13. Netflix’s share price has more than doubled from its lowest level in 2022, giving the company a market cap of over $148 billion, making it one of the largest media stocks globally.
Recently, Netflix’s share price has been influenced by various news events. For instance, former House Speaker Nancy Pelosi disclosed that she sold her Netflix shares in the fourth quarter. Investors often pay attention to Pelosi’s trades because, as a senior representative, she has access to classified briefings, and her market timing has been notable in the past.
Another development is Netflix’s introduction of a new, cheaper tier that includes ads. While it’s too early to judge the success of this tier, the head of Netflix’s ad business has expressed satisfaction with its initial performance. The Netflix Basic plan, priced at $6.99 per month, is the company’s most affordable option.
The most significant upcoming event for Netflix is the release of its quarterly results this week. These results will shed light on user growth during the holiday season and the performance of the ad-supported tier. Wall Street estimates that Netflix earned $7.84 billion in revenue and $0.54 per share in profit for the quarter, a slight decline from the previous quarter’s revenue of $7.93 billion and $3.10 per share.
These results are crucial as they will provide insight into the company’s user growth and its efforts to crack down on account sharing.
Netflix has had an interesting journey as a publicly traded company. It went public in 2002, following the dot-com bubble, and was initially seen as a disruptor to Blockbuster by selling movies through DVDs. At the time, Netflix’s stock traded for less than $1. The company gained significant traction in 2010, with its stock reaching a high of $45.
The stock continued to gain momentum, peaking at $703 in 2021. The pandemic further boosted Netflix’s popularity, and it became a prominent member of the FAANG group of stocks. However, post-pandemic, Netflix’s growth slowed, leading to a more than 72% drop from its all-time high, reducing its market cap to around $148 billion.
Several factors contributed to the decline in Netflix’s share price. First, after years of unprecedented growth, the company started losing subscribers during the pandemic, which was unthinkable a few years ago. Second, Netflix’s revenue growth slowed significantly, with revenue rising from $7.48 billion in Q3 2021 to just $7.9 billion in Q3 2022, a far cry from its previous double-digit growth rates. The company’s gross profits also dropped to $3.1 billion.
Third, increased competition in the streaming industry added pressure on Netflix. Competitors like Disney+, Hulu, HBO Max, CuriosityStream, Paramount+, and Amazon Prime have been gaining ground. For example, Disney+ now has over 165 million subscribers, while HBO Max, along with Discovery+, has added over 92 million users.
Wall Street analysts have mixed views on Netflix’s future. Analysts from Oppenheimer, Jefferies, CFRA, and Morgan Stanley are optimistic, believing the stock will recover in the long term. However, analysts from Goldman Sachs and Societe Generale are more pessimistic. The average price target for Netflix stock is $308, implying a 7% downside.
Among 32 analysts, the consensus rating for Netflix is a moderate buy. Of these, 15 analysts recommend buying the stock, 14 suggest holding it, and 3 advise selling.
Netflix was founded by Reed Hastings, who remains one of its largest individual shareholders, holding a 2% stake worth about $2.8 billion. The top shareholders of Netflix are institutional investors, with Vanguard Group holding a 7.89% stake, followed by BlackRock, FMR, State Street Corporation, Capital Research, and T. Rowe Price. Edgewood Management and Eagle Capital Management are also significant holders relative to their total assets.
In a recent prediction, I correctly anticipated that Netflix’s share price was showing signs of bottoming out as it began to recover from its previous lows.
Looking ahead, Netflix’s performance in 2023 will largely depend on its upcoming results. If the company exceeds expectations, I anticipate a bullish breakout, potentially pushing the stock above $500 by the end of the year. However, if the results disappoint, the stock could fall below $200. On the daily chart, Netflix has formed an ascending channel and moved above the 50-day moving average, suggesting that the stock could continue to rise in 2023, influenced by the Federal Reserve’s decisions.
Predicting Netflix’s stock price in 2025 is more challenging due to the rapidly changing media landscape. I believe Netflix will remain an integral part of people’s lives, but I’m somewhat pessimistic about the stock, expecting it to trade below $200 in 2025 due to intense competition.
Over the long term, quality stocks tend to rise. While major indices like the Nasdaq 100, Dow Jones, and S&P 500 have recently pulled back, history suggests they will eventually rebound. If that happens, I believe Netflix could recover by 2030 and trade above $400 per share. However, these predictions for 2025 and 2030 should be taken with caution.
One common question is whether Netflix pays a dividend. Currently, like many growth companies, Netflix does not pay dividends. Instead, the company invests heavily in content creation to attract more subscribers. Some analysts believe Netflix may start paying a dividend within the next three years. Netflix also returns value to shareholders through share repurchases, although the volume of buybacks has declined recently.
Netflix operates in a highly competitive industry. As mentioned earlier, Disney+ is its biggest competitor, with over 164 million subscribers, followed by HBO, owned by Warner Bros. Discovery. Other significant competitors include Paramount, Fox, and YouTube.