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New: Instantly spot drawdowns, dips, insider moves, and breakout themes across Maps and Screener.
Netflix has declined the day after each of its last three quarterly reports.
The stock has slid despite posting its strongest revenue growth in four years.
You can buy Netflix for less than 23 times next year's profit target.
There has been a lot of binge selling when it comes to Netflix (NASDAQ: NFLX) in recent months. Shares of the premium leader among streaming service stocks have plummeted 36% since hitting an all-time high seven months ago. The market has risen 11% in that time.
Netflix executed a 10-for-1 stock split in November -- a move that typically accompanies a rallying share price -- but that obviously isn't the case here. It doesn't take long to break down what's been holding Netflix stock back since its late June peak. The entertainment giant has cranked out three poorly received quarterly reports in that time. It has moved lower after each of those financial updates, but that isn't the biggest contributor to the slide.
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Image source: Getty Images.
The real reason Netflix is falling -- as stocks in general and consumer-facing businesses in general move higher -- is its winning bid for the juiciest assets of Warner Bros. Discovery (NASDAQ: WBD). The market isn't happy to see Netflix paying $72 billion in cash for its streaming and studio assets after its less valuable businesses are spun off to Warner Bros. Discovery shareholders.
It will be the largest Netflix acquisition, by far. Bears will argue that it's a sign that Netflix is willing to pay top dollar for a stock that was worth roughly a third of its current price a year ago because it's desperate. It needs new ammo to keep putting out double-digit revenue growth. However, with the stock already giving up more than $72 billion in market cap since first raising its bidding card for Warner Bros. Discovery -- more than $100 billion, actually -- is that fair? Right now, it's like buying Netflix and getting Warner Bros. Discovery for free.
The stock is already showing signs of stabilizing. Netflix slipped only 2% the day after posting fourth-quarter results last week, the smallest post-earnings dip of the last three quarters. Revenue rose 18% in the quarter. You have to go back to the spring of 2021 to find stronger year-over-year top-line growth.
Guidance has Netflix growing 12% to 14% this year, but we've seen Netflix aim lower than eventual reality before. A year ago, Netflix was modeling 12% to 14% in revenue growth for all of 2025. It came through with a 16% increase. Analysts see earnings per share rising 24% this year and 22% come 2027. You can buy Netflix for 23 times next year's projected earnings. It's a historical bargain for a stock that has earned a right to a market premium. With 325 million subscribers worldwide -- and continuing to find ways to grow its reach -- Netflix doesn't stay out of favor for long. Now is a perfect time to consider buying or adding to a Netflix position.
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Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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