Netflix: Up 70% in 12 Months - Should You Buy?

Netflix (NFLX) has been on a roll, with its stock price surging by an impressive 70% over the past 12 months. This remarkable performance has investors wondering if they should jump on the bandwagon. Let's dive into the factors driving Netflix's stock price growth and explore whether it's still a buy.



Driving Factors Behind Netflix's Stock Price Growth

1. Strong subscriber growth: Netflix has consistently added new subscribers, with a significant jump in the first half of 2022. As of Q3 2024, Netflix has 282.72 million paid subscribers, marking a 14.4% year-over-year increase. This growth is driven by the company's global expansion and diverse content offerings.
2. Advertising revenue: In November 2022, Netflix introduced an ad-supported tier, which has contributed to its revenue growth. In Q3 2024, ads memberships grew by 35% compared to the previous quarter, with more than half of new signups in eligible markets choosing the ad-supported tier. This trend is expected to continue, as Netflix aims to reach critical ad subscriber scale in all of its ads countries by 2025.
3. Content strategy: Netflix's focus on original programming and strategic partnerships has helped it maintain a competitive edge in the streaming market. The company's investment in high-quality, exclusive content has attracted and retained subscribers, contributing to its stock price increase.
4. Market dominance: Netflix remains the most subscribed streaming service globally, with a significant lead over its competitors. Its strong market position and brand recognition have contributed to investor confidence in the company's stock.

Valuation and Competitive Landscape

Netflix's current P/E ratio of 42 is significantly higher than its historical averages and those of its competitors. While this premium valuation reflects the company's strong financial performance and growth prospects, it also raises questions about whether the stock is overextended and whether setbacks could lead to a pullback.

When compared to its competitors, Netflix's P/E ratio is also higher. For example, Disney's P/E ratio is around 34, which is lower than Netflix's. This suggests that Netflix's valuation is relatively higher than its competitors.



Should You Buy Netflix?

Given Netflix's strong financial performance, subscriber growth, and expanding content library, the company appears well-positioned for continued success. However, its high P/E ratio and the potential for increased competition in the streaming market may warrant caution.

If you're considering buying Netflix, it's essential to weigh the risks and rewards. While the company's growth prospects are promising, it's crucial to monitor its performance and potential challenges, such as increased competition and changes in consumer behavior, to assess the long-term sustainability of its trends.

In conclusion, Netflix's 70% stock price increase over the past 12 months is driven by strong subscriber growth, advertising revenue, content strategy, and market dominance. While the company's high P/E ratio may raise concerns, its strong financial performance and growth prospects suggest that it remains a compelling investment opportunity. As always, it's essential to do your own research and consider your risk tolerance before making any investment decisions.