Netflix stock has fallen 30% in 3 months. These columnists say its valuation is Still irrational:
With the stock NFLX, +0.87% down 30% over the past three months, poor second-quarter results and signs that third-quarter subscriber numbers might be below expectations, the market is no longer buying CEO Reed Hasting’s previous ridiculous claims like that Fortnite and YouTube are Netflix’s primary competitors. Even Hastings now admits that the launch of new, competing streaming services will hurt Netflix’s growth.
The steady loss of licensed content means Netflix no longer has a larger content library than its peers. Amazon has the largest content library, and the Disney bundle’s collection of classic movies, family-friendly entertainment, prestige TV and live sports gives it a breadth of options Netflix can’t match.
A recent report from Evercore ISI suggests the company’s international growth has continued to struggle in the third quarter, with international downloads of its app up only 5% year-over-year in September. The company faces less competition internationally, so this slowing growth suggests its total addressable market may be lower than bulls believe. With competitors preparing their own international rollouts, we expect Netflix’s international business to start to plateau soon as well.
Moreover, the increased competition from rival media companies will make it harder for Netflix to advertise to consumers. To justify its current stock price of around $273 a share, Netflix must achieve a 12% after-tax operating profit margin and grow NOPAT by 23% compounded annually for 15 years. See the math behind this dynamic DCF scenario.
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