6 Reasons to Avoid Netflix (NFLX) Stock At This Moment
For many people, it seems like yesterday when Netflix Inc. (NASDAQ: NFLX | NFLX Price Prediction) was a fledgling company mailing DVDs to your house so you could view current movies. Now, the company is one of the world’s most…
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For many people, it seems like yesterday when Netflix Inc. (NASDAQ: NFLX | NFLX Price Prediction) was a fledgling company mailing DVDs to your house so you could view current movies. Now, the company is one of the world’s most prolific entertainment giants and one of the leaders in the global video streaming market.
With 247 million streaming paid memberships at the end of the third quarter, a jump of almost 8.76 million, everything is going perfectly for the entertainment juggernaut.
When you look under the surface, there could be some issues brewing. We comprehensively screened the stock and found six solid reasons to avoid the shares now.
Netflix is expensive
Trading at a huge 47.85 times trailing earnings puts the stock at nosebleed valuation territory. Add in the fact that the shares trade just below a 52-week high and $200 above the 52-week low, indicating minimal upside potential for the stock now.
Competition is growing and will continue to
Netflix faces a stunning amount of competition in the industry, and some have bottomless pockets, and more could be on the way. It competes directly with:
- Amazon.com (NASDAQ: AMZN) Prime Video
- Hulu, which is owned by The Walt Disney Company (NYSE: DIS)
- Disney+
- HBO Max
- YouTube TV
- Peacock
- Paramount+
- Fubo TV
- Sling TV
Why big tech could be the biggest threat to Netflix
While Disney may be the most significant direct threat to the company, many across Wall Street feel that Apple Inc. (NASDAQ: AAPL), Google, Inc. (NASDAQ: GOOG), Amazon, and others in the mega-tech sphere could be lining up direct challenges. Given Amazon’s and Google’s gigantic cloud presence, either could make a charge for the Netflix paid subscriber base.
Price increases could make subscribers leave
To thwart account sharing, Netflix purged millions of accounts to get the freeloaders off the matrix. While many did pay to remain, the price increases in the standard plan have made many opt for more reasonable content.
The Pandemic tailwind is over
After the country was shut down during the COVID-19 pandemic in the spring of 2020, many signed up for the service as most venues for entertainment were closed. With that unfortunate time behind us and likely never to appear again, the competition focuses even more on the vast Netflix audience.
Revenues were higher for the quarter, but not by much.
Third-quarter revenues came in at $8.54 billion, up 7.8% on a year-over-year basis, but the number only topped analysts’ estimates by 0.11%, not much for investors looking to buy the shares at the very top of the trading range.
Netflix remains an outstanding company, but it is way too expensive for investors to look at now at the current trading level. The stock surged 30% higher after the third quarter earnings report in mid-October and needs to trade back some for investors to start buying shares.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
