Is the Netflix Stock on Track to Reach New Record Highs?

Netflix stock prices dropped from its record-high of $691.69 in October 2021 to under $170 in mid-2022, when the stock market had a terrible year amid recession fears and the US Fed's aggressive monetary tightening campaign to curb raging inflation. The Fed's move led to record interest rates that remain elevated.

However, the tech-heavy stock has bounced back stronger since then and appears to be on track to reach a new record high. Netflix is trading at $610.52 as of writing this article.

The company posted growth in overall revenues in all quarters since Q1 2023. In its latest earnings report for Q1 2024, Netflix posted a 14.8% year-over-year (YoY) increase in revenue to $9.37 billion from $8.16 billion.

Meanwhile, operating income grew 54% to $2.6 billion while operating margin increased by seven percentage points to an impressive 28.1%.

However, net income in Q1 2024 soared by 83% YoY to reach $2.33 billion from $1.3 billion. Netflix's several Q1 figures beat analysts' estimates and continue to dominate the streaming space.

For the fiscal year 2024, the management projected a revenue growth between 13-15% and lifted its operating margin projections by 1% to a stellar 25%. Furthermore, Netflix added 9.33 million new subscribers in the latest quarter compared to 1.75 million in Q1 2023 to take global streaming paid memberships to 269.6 million, marking a 16% YoY growth.

The jump in subscriber base is attributable to the company's effective ad-supported tier focused on scaling the user base and building out capabilities for advertisers. Its ads membership grew 65% quarter-over-quarter (QoQ).

Netflix's net cash and free cash flow (FCF) in Q1 2024 remained flat YoY. While the company generated net cash of $2.2 billion and an FCF of $2.1 billion, it used $400 million to pay off senior notes and bought back 3.6 million for $2 billion.

The company forecasted almost $6 billion in cash flow for the full year 2024. Over the years, it has consistently allocated capital to finance new business initiatives, pursue mergers and acquisitions for expansion, and return excess capital to shareholders through stock buyback programs.

The company continues to focus on the variety and quality of content, marketing strategies, and product innovation, as well as exploring additional avenues of profits and driving healthy engagement across the platform.

Although the stock declined early this month, it wasn't likely because of its gross debt of $14 billion. Netflix management announced that starting Q1 2025, it would stop reporting quarterly subscriber figures and the average revenue per membership.

In 2023, it stopped offering quarterly paid subscriber guidance, citing that revenue and operating margin were its top financial metrics.

While subscriber growth was a strong indicator of future growth in its early days, Netflix said in its latest stakeholder letter that "memberships are just one component of our growth," as it is generating significant profits and FCF.

However, they will keep providing quarterly revenue breakouts across regions and announce major subscriber milestones and trends. These developments might have gone poorly with Wall Street, which hates uncertainty and lack of transparency.

Further, the situation could also give way to speculations that Netflix's decision to stop releasing these numbers could be because its inability to add new users consistently moving forward due to market saturation and rival competition.

Since Netflix makes up 10% of total TV viewing time in the US, it can command more share with a significant content budget and its proven track record of listing engaging content.

The stock maintains a price-to-earnings (P/E) ratio (trailing twelve months) of 42.38, which may be expensive for many investors. However, the firm's leading position and a healthy balance sheet may position it for decent growth over the coming years.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.