We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Netflix Inc (NFLX) Common Stock US$0.001

Sell:$628.08 Buy:$628.27 Change: $2.50 (0.40%)
Market closed |  Prices as at close on 8 December 2021 | Switch to live prices |
Sell:$628.08
Buy:$628.27
Change: $2.50 (0.40%)
Market closed |  Prices as at close on 8 December 2021 | Switch to live prices |
Sell:$628.08
Buy:$628.27
Change: $2.50 (0.40%)
Market closed |  Prices as at close on 8 December 2021 | Switch to live prices |
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (20 October 2021)

Netflix reported a 9.4% year-on-year increase in global paid memberships in the third quarter, with growth driven by the Asia Pacific region. The combination of more subscribers and higher average prices meant quarterly revenue rose 16.3% year-on-year to $7.5bn, broadly in line with market expectations.

Quarterly operating profits rose 33.5% year-on-year to $1.8bn. That was significantly better than analysts expected, thanks in part to the timing of investment in new content and lower than expected marketing spend.

Netflix shares were broadly unmoved following the announcement.

View the latest Netflix share price and how to deal

Our view

Netflix has delivered another quarter of better than expected subscriber growth. That is no mean feat given the bumper subscriptions triggered by lockdowns last year.

Continuing to grow the user-base is crucial. It allows Netflix to spread its enormous costs across a larger customer base, which is what will ultimately allow it to become cash flow positive. Netflix spends $11bn+ a year on new content, and this spending is pretty non-negotiable. Competition in the space is fierce, thanks to the likes of Amazon and Disney+.

We're encouraged to hear that existing subscribers are sticking with Netflix. But keeping customers engaged is only going to get harder. The group believes it competes not just with other streaming businesses, but with gaming, reading, and conventional TV for customer attention. It's a belief nicely illustrated by the fact engagement rose 14% during the recent Facebook/WhatsApp/Instagram outage. If true, the group needs a content catalogue that can compete with practically all entertainment out there.

Netflix's response is to ramp up spending and invest in new areas. The group has decided to step into gaming, and new content brings together the likes of Leonardo DiCaprio, Jennifer Lawrence, Jonah Hill, Rob Morgan and Meryl Streep in a single film. Clearly the group feels its already formidable content war chest needs strengthening further.

This comes at a price, and the timing of new spending is expected to see operating margins collapse from 23.5% in the third quarter of this year to just 6.5% in Q4. Management believe rapid subscription growth means free cash flow will roughly break even despite the extra spending, but if this is the level of spending it takes to complete going forwards it does not bode well for profits. The recently announced $5bn share buyback is being delivered more slowly than markets might have expected, which suggests the demands on the group's cash flows are substantial.

Fortunately the group benefits from some structural growth opportunities. The pull of box office hits is much less potent these days - instead people are continuing to look for smash content from the comfort of their sofas. We think this could be a long-term behavioural shift. The group's head-start in local language content is also a real asset. As the more mature US and European regions start to plateau, adding new subscribers will be the responsibility of emerging markets.

The next 12 months will be crucial. If Netflix can hold onto pandemic customers and continue to add new customers in the Asia Pacific region then short-term content spending will be well worth it. We suspect there may also be room for price increases in time, which would do wonders for the bottom line. Let's not forget that streamed content is the new normal. And Netflix isn't just in the game, it practically invented it.

Netflix key facts

  • Price/earnings ratio: 51.1
  • Ten year average Price/earnings ratio: 133.3
  • Prospective dividend yield (next 12 months): 0.0%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Sign up for updates on Netflix

Third Quarter Results

Netflix now has a total of 213.6m subscribers, slightly better than management had expected. Underlying average revenue per member rose 5% year-on-year.

The group reported a free cash outflow in the quarter of $106m, compared to a $1.1bn inflow in the same period last year. However, the group continues to expect full year cash flow to be around breakeven, despite further outflows next quarter. The group finished the quarter with net debt of $8.0bn, down from $8.1bn a year ago.

Management expect fourth quarter revenue to rise 16.1% year-on-year, to $7.7bn, with operating profits of $500m as content spending increases.

Find out more about Netflix shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.


Previous Netflix Inc updates

Data policy - All information should be used for indicative purposes only. You should independently check data before making any investment decision. HL cannot guarantee that the data is accurate or complete, and accepts no responsibility for how it may be used.

Share

The London Stock Exchange does not disclose whether a trade is a buy or a sell so this data is estimated based on the trade price received and the LSE-quoted mid-price at the point the trade is placed. It should only be considered an indication and not a recommendation.

Trades priced above the mid-price at the time the trade is placed are labelled as a buy; those priced below the mid-price are sells; and those priced close to the mid-price or declared late are labelled 'N/A'.