Netflix, Inc. (NFLX) experienced a challenging year navigating 2022’s tumultuous market. Netflix had disappointing performance and faced strong competition. Fortunately, Netflix saw a mild rebound in October but continues to underperform the S&P 500. Netflix has fallen by approximately 60% compared to the S&P’s decline of about 12% as of October 27, 2022, over the past year. Hedge funds were actively selling the stock in the second quarter, though the stock rose on the WhaleWisdom Heatmap to a ranking of nine from sixteen.
Netflix is an entertainment services company that provides a subscription streaming service and has a production company that produces and co-produces streaming content. The company has over 200 million subscribers worldwide and brings in revenue primarily from subscriber fees, with a more recent focus on advertising. Netflix seeks to improve subscribership and revenue statistics by cracking down on customers’ password sharing. Their strategy involves monetizing the practice of account sharing by allowing subscribers to transfer profiles beyond their primary household and create sub-accounts for a smaller fee. Netflix is also launching an ad-supported membership option in twelve countries beginning in November 2022. For a lower subscription cost, customers can choose the ad-supported plan, which will apply targeted marketing capabilities for audiences based on factors such as the content they stream and the country they reside in.
Hedge Funds and Institutions Sell
Hedge Funds adjusted their portfolios in the second quarter, and the aggregate 13F shares held decreased to approximately 70.8 million from 73.4 million, a slide of about 3.6%. Overall, 50 hedge funds created new positions, 139 added, 114 exited, and 99 reduced their holdings. Institutions also sold and lowered their holdings by about 3.3% to $333.7 million. The 13F metrics between 2005 and 2022 suggest that Netflix still has long-term investment potential.
Encouraging Multi-year Estimates
Analysts anticipate earnings will rise through 2023, with year-over-year increases in growth that could bring earnings to $10.66 per share by December 2023, up from a projected $10.31 for 2022. Revenue predictions are also favorable, with revenue expected to increase to about $33.9 billion by 2023, up from an estimated $31.6 billion in December 2022.
Analysts Are Encouraged by Improved Performance
Netflix saw growth once again in October, and analysts took notice. Pivotal Research Group analyst Jeffrey Wlodarczak raised the firm’s rating on the stock to a Buy from a Sell and set a price target of $375 on Netflix shares. Wlodarczak expressed optimism at Netflix’s ability to recoup revenue lost from customers’ password sharing and appeared cautious about the risk of customers downgrading subscription services in a recession. Analyst Satoshi Tanaka of Daiwa Capital raised their firm’s price target on Netflix to $330 from $226 following improved earnings and upgraded the stock to an Outperform rating from a prior Neutral rating projection. Oppenheimer & Co. analyst Jason Helfstein kept an Outperform rating on Netflix and raised the firm’s price target to $365 from $325. Helfstein was encouraged by Netflix’s strategy to identify shared accounts and push many account holders to ad-supported streaming subscriptions.
Better Days Beyond 2022
Netflix is beginning to rebound from this bearish market, and investors should be encouraged by analysts’ optimistic earnings and revenue estimates through December of 2023. While hedge funds sold in the second quarter, Netflix’s losses offer the opportunity to acquire the stock for less. Netflix continues to offer new streaming content and older TV and movie favorites to its customers. The streaming provider has developed strategies to launch ad-supported membership globally and recoup lost revenue from ad-sharing. Netflix has positioned itself well to adapt to changes in demand and draw investors’ attention.