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Netflix Has the Ability Rise to $1000 and Beyond

Stock (Symbol)

Netflix (NFLX)

Stock Price

$539

Sector
Technology
Data is as of
February 28, 2021
Expected to Report
April 19
Company Description
Netflix, Inc. is a provider of the Internet television network. The Company has over 180 million streaming members in over 50 countries. Its members can watch more than two billion hours of television (TV) shows and movies per month, including original series, documentaries and feature films on Internet-connected screen. The Company has three operating segments: Domestic streaming, International streaming, and Domestic DVD. Source: Thomson Financial
Sharek’s Take
David SharekNetflix (NFLX) is growing rapidly in Europe and Asia as the company continues to have strong momentum with membership growth. Last qtr, Netflix had 23% growth in paid streaming memberships. The company has literally gone global, as 83% of paid net adds from 2020 coming from outside the U.S. and Canada. Europe, Middle East & Africa accounted for 41% of full year paid net adds, while Asia Pacific had the strongest growth rate in new memberships at 57%. Asia and Europe are growing rapidly, and give this company growth opportunity more than I ever imagined. I used to think Netflix could reach 250 million subscribers someday. Now with the company at 204 million subs, I have to guess 300-400 million is more realistic 3-5 years from now. Here’s a rundown of subscribers in different regions:

  • United States and Canada: 74 million paid memberships, up 9% year-over-year, paying $14 a month
  • Europe, Middle East, Africa: 67 million paid members, up 29% from a year-ago, at an average of $11 a month
  • Latin America: 38 million paid memberships, up 19% with members paying $7 a month
  • Asia Pacific: 25 million paid memberships, up 57% yoy, at an average of $9 a month

NFLX the company is doing great, and the stock might have the ability to reach $1000 a share by 2025. Now this is a far-out estimate, but here’s my past takes:

  • 2016 Q1: NFLX was $90 and my long-term hypothetical was $3.25 in profits x 40 P/E = $130 stock
  • 2017 Q1: NFLX was $142 and my long-term hypothetical was $7.77 in profits x 35 P/E = $272 stock
  • 2018 Q2: NFLX was $325 and my long-term hypothetical was $13.82 in profits x 36 P/E = $498 stock
  • 2019 Q1: NFLX was $279 and my long-term hypothetical was $11.50 in profits x 45 P/E = $517 stock
  • 2020 Q3: NFLX was $502 and my long-term hypothetical was $20 in profits x 45 P/E = $900 stock
  • 2021 Q3: NFLX is $539 and my long-term hypothetical is $26 in profits x 50 P/E = $1300 stock

Netflix spent many years building out its infrastructure overseas, and now the company is rolling in the profits. Annual profit growth has averaged 92% the past five years, and profits are expected to climb 63% in 2021. And the growth is expected to continue for years to come. Analysts predict NFLX will go from earning around $6 last year to $10 this year, $13 next year, $17 in 2023, $22 in 2024 and $26 in 2025. Whew! So you’re looking at a stock that is just over $500 that’s selling for 20x future estimates. NFLX has an Estimated Long Term Growth Rate of 44% a year, one of the fastest growth rates in my universe. Management expects to return cash to shareholders through stock buybacks as it did during 2007-2011. NFLX is part of the Growth Portfolio. I think is the stock has the ability to be $1000 in two-to-three years, and perhaps $1300 four years from now.

One Year Chart
Note: these charts and tables were done on 2/28 when the stock was $539. Today is Monday, 3/8 and I’m writing the article at 4am Monday morning. The stock closed at $516 on Friday after a brutal NASDAQ selloff last week. Look at this one-year chart. Notice the long base dating back to last June. NFLX just went through a tech stock massacre last week, and didn’t break a sweat. Also notice qtrly profit growth Estimates are for 90% and 69% growth the next 2 qtrs. Netflix might become a leader in the next market rally! Another bullish sign is the stock tried to break out after it reported earnings last qtr. Notice the spike up towards $600 that occurred six weeks ago. That was the week earnings were announced. What’s not shown is volume was very high. The stock wasn’t able to follow through and run higher, but the market conditions have been weak.

Qtrly profit growth was weak last qtr, and I honestly don’t care why. If you get caught up in NFLX qtrly results, you’re likely to pick at the stock until you find something you don’t like. (note: although profit growth was -8% last qtr, in the prior year growth was 333%, so the weak growth might be due to weak comparisons)

The Est. LTG of 44% per year is exceptional, and that figure is up from 41% last qtr and 35% two qtrs ago. The P/E is 54, down from 60 last qtr and 81 two qtrs ago. This stock is being overlooked by investors.

Earnings Table
Last qtr, Netflix delivered -8% profit growth and missed estimates of 8%. Revenue increased 22%.

Annual Profit Estimates for 2021 jumped from $9.05 to $9.90. Netflix’s operating margin jumped from 13% in 2018 to 18% in 2020 and management thinks it can hit $20% this year. It also believes it can raise profit margins at an average rate of three percentage points a year. Wow! That’s why annual profit estimates are:

2021 $9.90
2022 $12.99
2023 $17.46
2024 $21.77
2025 $26.37

Qtrly profit Estimates for the next 4 qtrs are splendid: 90%, 69%, 43% and 49%

Fair Value
My Fair Value P/E stays at 75. That gives the stock 38% upside this year and 81% by 2021. Recall, NFLX is (was) $516 and notice the 2022 Fair Value is $974. This stock might double by next year. Of course this is hypothetical, and optimistically hypothetical at that. But your have REAL PROFITS here. We are currently in a stock market where stocks with little-to-no profits are getting bashed. Meanwhile, NFLX has built a LONG base and didn’t break below that base in last week’s selloff. 

 

Bottom Line
Netflix (NFLX) has been an amazing stock this past decade. But do notice profits declined in 2012-2016 when the company was expanding its streaming platform. This stock didn’t “fit the mold” of mine during that time, thus I didn’t own the stock for much of this run higher. It’s a lesson learned to hang on to companies that are “investing in growth”.

Today, the company is reaping the benefits from the International expansion done years ago. Profits are chugging higher, and that’s expected to continue for years to come. I imagine this stock will be a real leader in the next stock market rally.

NFLX surges from 45th to 25th in the Growth Portfolio Power Rankings. I will add to my position after the market opens for trading later today. 

Power Rankings
Growth Stock Portfolio

25 of 56

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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