Netflix (NFLX) reported earnings last night and today the stock is down around $100, selling for around $350. There’s a number of reasons for the stock’s decline, most notably a rather crappy stock market which intensifies bad news. When we analyze the the numbers, both domestic subscribers and International subscribers came in below projections. In the US the company added $1 million subscribers vs. the $1.3 million estimate, and abroad it gained $2 million subscribers vs. the $2.4 million estimate. Also, “One Month Free” trial subscriptions came in below plan.
But honestly, this is a story about a company growing a global business, and that’s been the case for years now. When the stock went from $200 to $50 a few years back, the reason was subscriber growth was slowing here in America. But at the time the company was focused on plowing whatever cash flow it had into being first-to-market in European countries, which it did successfully. The tide turned and the stock jumped to almost $500.
Today the tide has turned the other way. Now I want to know if we should be buying NFLX now that its down $100.
One Year Chart
These charts and tables were compiled last quarter. I need a week for analysts to update their estimates before I can make fresh charts. So this one year chart is as of July 29th.
With the stock down today to $350, its hitting support from April & May. I feel it will eventually settle around $300 to $350.
The 110 P/E was high, but us analysts were looking out to 2016. 2016 estimates were for the company to make $10.16. So we had to consider what a company that makes $10 in profits a year is worth.
Fair Value
My take on NFLX last quarter was this: the company was expected to make $10 in 2016. Put a P/E of 35 to 45 on the stock and you get a 2016 Fair Value of $350 to $450. With the stock around $450 that was around the high-end of its suggested valuation. Keep in mind that was a 2016 target.
Now I see 2016’s estimate is currently $7.68. That’s a big drop from $10. A 35-45 P/E on that figure is $269 to $346. Again, a 2016 estimate. So still the stock is still at the high-end of the range.
Sharek’s Take
Netflix is a great global brand and I’m not at all concerned with subscribers coming in below plan. But in the end the big drop in annual estimates took makes it so the $100 price drop is accurate. Both yesterday and today the stock sells for 45x 2016 profits give-or-take. I’m guessing when I update my figures next week I’ll be thinking the stock to be worth $350 in 2016 — and NFLX is there now. To me NFLX is still too high to buy.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
