Insights

• Netflix is a profitable and growing company with a strong liquidity position and a healthy capital structure.
• The company's revenue growth is driven by membership growth and price increases.
• The company is investing heavily in content, particularly original programming, to drive membership growth and retention.
• The company is also expanding its offering to include live programming and advertising.
• The company's cash flows are strong, as evidenced by its consistent generation of free cash flow.
• The company's capital expenditures are increasing, reflecting its commitment to investing in content and infrastructure to support its growth strategy.
• The company faces intense competition from a wide range of entertainment providers.
• The company's heavy investments in content are driving growth but also increasing its fixed costs and liquidity requirements.
• Cybersecurity, technology, and legal/regulatory risks remain key concerns.
• The company's substantial debt and content obligations could pose risks to its long-term flexibility and liquidity.

Analysis

• Revenue - Revenue growth is strong and sustainable, driven by membership growth and price increases. - The company is expanding its offering to include live programming and advertising, which are expected to contribute to future revenue growth.
  • Profitability
    • The company's profitability is strong, as evidenced by its high return on average assets, return on average total equity, return on average total capital, and return on average invested capital.
    • The company's profitability is also reflected in its high gross profit margin, operating margin, and net profit margin.
  • Liquidity
    • The company's liquidity position is strong, as evidenced by its current ratio and quick ratio, both of which are above 1.
  • Solvency
    • The company's solvency is strong, as evidenced by its low debt-to-equity ratio and debt-to-EBITDA ratio.
  • Operational Efficiency
    • The company's efficiency is high, as evidenced by its high return on average assets, return on average total equity, return on average total capital, and return on average invested capital.
  • Cash Flow Analysis
    • The company's cash flows are strong, as evidenced by its consistent generation of free cash flow.
    • The company's capital expenditures are increasing, reflecting its commitment to investing in content and infrastructure to support its growth strategy.
    • The company's free cash flow margin has been declining, which could be a concern if it continues to trend downward.
  • Risk Factors
    • The company faces intense competition from a wide range of entertainment providers.
    • The company's heavy investments in content are driving growth but also increasing its fixed costs and liquidity requirements.
    • Cybersecurity, technology, and legal/regulatory risks remain key concerns.
    • The company's substantial debt and content obligations could pose risks to its long-term flexibility and liquidity.
  • Future Outlook
    • The company's revenue growth is expected to continue in the future.
    • The company's profitability is expected to remain strong.
    • The company's cash flows are expected to continue to grow in the future.
    • The company's free cash flow is expected to remain positive, providing it with the flexibility to repay debt, invest in growth opportunities, and potentially return capital to shareholders.

Benchmarks (as of 2025-03-10)

• Performance Comparison:

  • Netflix (NFLX) has demonstrated mixed performance compared to the Technology Select Sector SPDR Fund (XLK). Over the past year, NFLX has significantly outperformed XLK, with returns of 44.22% versus 1.89%. This trend extends to longer periods, with NFLX outperforming XLK by 139.61% over two years and 105.71% over three years. However, in the short term, NFLX has shown underperformance, particularly over the last week (-10.89% vs. -4.23%) and month (-14.03% vs. -11.46%). Year-to-date, NFLX has outperformed XLK, but the recent negative returns indicate potential short-term volatility.

• Risk and Return Analysis:

  • NFLX has provided higher annualized returns compared to XLK over the past one, two, and three years. The annualized return for NFLX over two years is 71.84%, significantly higher than XLK's 24.77%. However, NFLX also exhibits higher annualized volatility. For example, in Q2 2022, NFLX's volatility ranged from 43.96% to 120.51%, while XLK's ranged from 28.65% to 42.35%. The maximum drawdown for NFLX was -75.95% on 05/11/2022, much larger than XLK's -33.56% on 10/12/2022. This indicates that while NFLX offers higher potential returns, it comes with significantly greater risk.

• Risk-Adjusted Performance:

  • The Sharpe Ratio for NFLX has generally been lower than that of XLK, indicating that XLK has offered better risk-adjusted returns, especially in earlier periods. While NFLX's Sharpe Ratio has improved over time, it remains more volatile and less consistent than XLK's. In Q1 2025, NFLX's Sharpe ratio ranged from 1.34 to 2.3, while XLK's Sharpe ratio ranged from 0.19 to 1.32. The beta value for NFLX has generally been above 1, indicating that it is more volatile than the market. As of Q1 2025, NFLX's beta ranged from 1.12 to 1.24, while XLK's beta ranged from 1.57 to 1.64, suggesting that NFLX's sensitivity to market movements is high.

• Overall Assessment:

  • NFLX presents a higher-risk, higher-reward profile compared to XLK. While NFLX has demonstrated significant outperformance over longer periods, it experiences greater volatility and drawdowns. The lower Sharpe Ratio suggests that the risk-adjusted returns are not as favorable as those of XLK. Recent trends indicate that NFLX's volatility may be moderating, but it remains a riskier investment. Investors should consider their risk tolerance and investment horizon when evaluating NFLX. If an investor is seeking higher growth potential and is comfortable with significant price swings, NFLX may be considered. However, if the investor prefers more stable returns with lower risk, XLK may be more suitable.

Peers Price History(as of 2025-03-10)

• Performance Comparison:

  • Netflix (NFLX) has generally outperformed both Comcast (CMCSA) and The Walt Disney Company (DIS) over the past three years. Over the last three years, Netflix has returned 154.67% compared to -12.4% for Comcast and -20.79% for Disney. However, recent performance has been mixed. Year-to-date, Netflix is at -2.26%, outperforming Comcast at -2.69% and Disney at -6.98%. Over the past month, Netflix has underperformed, returning -14.03% compared to Comcast's 2.5% and Disney's -5.45%.

• Risk and Return Analysis:

  • Netflix has provided higher annualized returns compared to its peers over the 1, 2, and 3-year periods. The 2-year annualized return for Netflix is 71.84%, significantly higher than Comcast's 3.87% and Disney's 6.16%. However, Netflix has also exhibited higher annualized volatility. For example, in Q2 2022, Netflix's volatility ranged from 43.96% to 120.51%, while Comcast's peaked at 35.84% and Disney's at 41.66%. The maximum drawdown for Netflix was -75.95% on 2022-05-11, which is substantially larger than Comcast's -52.11% and Disney's -59.77%. This indicates a higher risk profile for Netflix.

• Risk-Adjusted Performance:

  • Netflix generally has higher Sharpe Ratios compared to Comcast and Disney, indicating better risk-adjusted returns. However, there have been periods where Comcast's Sharpe Ratios were competitive. Netflix's beta has generally been above 1, indicating that it is more volatile than the market. As of Q1 2025, Netflix's beta is 1.22, while Comcast's is 0.51 and Disney's is 0.56.

• Overall Assessment:

  • Netflix has demonstrated strong historical performance and higher returns compared to Comcast and Disney, but it comes with higher volatility and risk, as evidenced by its larger drawdowns and higher beta. While Netflix offers better risk-adjusted returns based on Sharpe Ratio, its higher volatility may not be suitable for all investors. Recent trends indicate that Netflix's volatility has decreased, but it remains more volatile than its peers. Investors should consider their risk tolerance when evaluating Netflix compared to Comcast and Disney.

Peers Fundamentals(as of 2024-12-31)

1. Market Position and Size:

   • NFLX is the largest company in the peer group, with a market cap significantly larger than CMCSA and DIS.
   • NFLX's market cap is disproportionately large compared to its revenue, EBITDA, and net income, suggesting investors are willing to pay a premium for its growth potential.
   • NFLX's dominant market position and growth prospects are reflected in its high market valuation.

2. Profitability and Efficiency:

   • NFLX exhibits significantly higher profitability metrics (Gross Profit Margin, EBITDA Margin, Net Profit Margin) than its peers and the industry average.
   • NFLX's profitability is impressive considering its size and revenue, suggesting efficient cost management and strong earnings generation.
   • NFLX significantly overperforms in profitability metrics, highlighting its key strength and a major driver of its market valuation.

3. Financial Health and Stability:

   • NFLX has a relatively strong liquidity position, with a Current Ratio and Quick Ratio higher than its peers.
   • NFLX's debt position is conservative, with a Total Debt to Total Equity Ratio and Debt / EBITDA lower than its peers and the industry average.
   • NFLX's overall financial health is strong, characterized by high profitability, strong growth, and a conservative debt position.

4. Valuation and Market Perception:

   • NFLX's valuation metrics (Enterprise Value To Sales, Enterprise Value To EBITDA, Price To Earnings, Price to Book Ratio, Price To Sales Ratio) are significantly higher than its peers and the industry average.
   • NFLX's high valuation reflects the market's high expectations for its future growth, even though its current earnings are lower than its peers.
   • Investors are willing to pay a premium for NFLX's future earnings potential, driven by its strong growth prospects and dominant market position.

5. Cash Flow and Capital Management:

   • NFLX's cash flow metrics (Net Operating Cash Flow, Total Capital Expenditure, Free Cash Flow) are lower than its peers, considering their market caps.
   • NFLX's cash flow generation strength is relatively weak compared to its size, peers, and industry norms, likely due to significant investments in content production and expansion.

6. Growth and Future Prospect:

   • NFLX consistently shows higher growth in revenue, EBITDA, net income, and basic earnings per share compared to the peer group average.
   • NFLX's year-over-year growth rates exhibit significant fluctuations, particularly in free cash flow and free cash flow margin, suggesting potential volatility.
   • NFLX's 5-year CAGR figures are significantly higher than its 3-year CAGR figures for revenue, EBITDA, net income, and basic earnings per share, indicating accelerating growth.
   • NFLX's growth is concentrated in revenue, EBITDA, net income, and basic earnings per share, while its free cash flow and free cash flow margin are lagging, suggesting potential imbalances.

7. Potential for Investment:

   • NFLX presents a compelling investment opportunity due to its dominant market position, high profitability, and strong growth prospects.
   • Investors should be aware of the risks associated with its lower free cash flow, high valuation, and fluctuating growth rates.

8. Key Risks and Considerations:

   • The sustainability of NFLX's growth rates is a key concern, as its free cash flow and free cash flow margin have been consistently decreasing.
   • NFLX's high valuation suggests that the market is pricing in high expectations for its future growth, which may not be sustainable.
   • NFLX's fluctuating growth rates, particularly in free cash flow and free cash flow margin, suggest potential volatility and challenges in maintaining consistent growth.

9. Overall Assessment:

   • NFLX is a financially strong company with high profitability, strong growth, and a conservative debt position.
   • However, its lower free cash flow and high valuation raise concerns about the sustainability of its growth and its ability to generate returns for shareholders.
   • NFLX's dominant market position and strong growth prospects make it a compelling investment opportunity, but investors should carefully consider the risks associated with its financial performance and valuation.