Netflix, Inc.

NFLX Details

Netflix, Inc. (NASDAQ: NFLX), main business, is a video-on-demand streaming service available in almost every country except China.

Why should Investors Sell?

• Decrease in Operating Income: The company has posted an operating income of USD 632 million in Q4FY21 compared to USD 954 million in Q4FY20, due to high operating expenses.
• Negative Free Cash Flow: The company has recorded a negative free cash flow of USD 569 million in Q4FY21.
• Government Regulations: The company is exposed to government internet laws, which could alter business practices.
• Challenging Market Conditions: The company's business might be affected by the adverse impact of costs, strategic acquisitions, and investments, subject to market conditions.
• Technical Bearish Indicators: The company's current market price is USD 457.13, which is below the 50 and 200 DMA.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

Stock Recommendation:

The company has posted an increase in revenue. However, excessive operating expenses lead to poor earnings performance, also the company has posted a negative cash flows and lower operating margins of 8.4%, far below its 19 to 20% target. Also at the last closing price the stock is tilted towards its 52W Low. We have valued the stock using Price to Book Value multiple-based relative valuation methodology and arrived at a target price of USD 373.66.

Considering the company's financials, lower margins, market conditions, current valuation, and bearish technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 457.13, up 7.02%, as of February 01, 2022.

NFLX Daily Technical Chart as on February 01, 2022 (Source: REFINITIV, Analysis by Kalkine Group).

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV. 

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