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Netflix Is Down 46% -- Here's Why I'm Buying More
The Motley Fool • • business
Key Points:
- Netflix's stock has dropped approximately 46% since last summer due to slowing earnings growth and reduced disclosure of viewer engagement, but its strong free cash flow generation suggests the sell-off may be excessive.
- The company is projected to generate $12.5 billion in free cash flow this year, with potential for significant growth driven by its large global subscriber base of 325 million and increasing revenue per user through price hikes and advertising.
- Netflix invests about $19 billion annually in content, effectively leveraging its global reach to promote popular titles and expanding into live events that drive new sign-ups despite limited watch time.
- Management targets operating margin expansion by aligning content budgets with revenue projections, resulting in steady free cash flow growth and enabling substantial share buybacks, with $11.5 billion repurchased in the first half of the year and $27 billion authorized for future buybacks.
- Trading at roughly 28 times free cash flow, Netflix offers investors a compelling valuation relative to other media companies, benefiting from its pure streaming focus without the legacy costs of traditional networks.
