At its June 25 closing price of about $527 a share, Netflix is worth $233.7 billion. That’s based on about $30 billion of revenue this year. In 2020 it reported $25 billion in revenue. You’re paying over 7.5 times this year’s take, and more than 63 times earnings, for 20% growth.
It’s a hefty valuation in anyone’s book. This is why the Netflix stock price remains down 2.53% for the year. Gamblers don’t make bank betting on heavy favorites. When it comes to streaming, Netflix is the undisputed heavyweight champion.
Valuing NFLX Stock
At the end of March, Netflix had 208 million subscribers worldwide. It has pushed through price increases to as much as $18 a month for U.S. premium services on up to four screens.
Netflix’ secret sauce is its algorithm. It can tell subscribers what they want to watch next based on past viewing history. This means Netflix doesn’t have to guess on what to buy. It can cut to the chase and buy it. If people like Spielberg, they can get Spielberg. This is incremental revenue to ET’s creator. His is not an exclusive deal.
While Netflix dominates streaming, in terms of revenue it’s not much bigger than ViacomCBS. Disney has more than double its revenue, mainly thanks to theme parks. Comcast has 3.5 times more revenue, thanks to domination in broadband. Why, then, is Netflix worth nearly 8x Viacom, two-thirds of Disney and almost as much as Comcast?
It’s a growth premium. If Netflix is running out of growth runway, the stock should be falling.
One way to grow is through video games. But none of the big video players is in gaming because they’re different markets.
Enter “smart stages.” They replace a green screen with a totally immersive environment. Footage created on such a stage can go directly into the game. All you need to produce an immersive game from a smart stage shoot are multiple takes. Within a very few years, smart stages and their files will be cheap enough that you can bring visitors inside one to engage with the characters, through a VR headset.
The way Disney makes the big bucks is through theme parks. Six Flags Entertainment (NYSE:SIX), which owns 27 parks, is worth $3.83 billion after a 31.5% gain year-to-date. Netflix can get it for the equivalent of pocket change. How would you like to be locked in a real Bird Box?
CEO Reed Hastings has rejected the idea of an ad-supported Netflix, but there’s still potential in licensing. Shows that have finished their runs — like House of Cards, Orange is the New Black or Unbreakable Kimmy Schmidt — might still be syndicated. And who wouldn’t want to join former Richie Rich star Jake Brennan on a Netflix cruise? Let him produce all the entertainment!
The Bottom Line
Netflix is not going to be overthrown by Disney. Or Peacock. Or Paramount Plus. Or HBO Max. Or even by Amazon (NASDAQ:AMZN) Prime.
Netflix is the streaming incumbent. That means a lot. That’s because the gating factor to streaming is time, not money. You don’t need a half-dozen streaming services if the one you buy can absorb all of your time.
But for Netflix, streaming is a mature market. It needs new growth catalysts. It needs to maximize the value of its intellectual property. Investors are waiting to hear how it might do that. If you want to speculate on Netflix now, you can get in ahead of them.
On the date of publication, Dana Blankenhorn held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.