What a difference three months makes.
In mid-October, Netflix's (NFLX) shares soared (for a brief amount of time) after the company soundly beat Q3 subscriber growth estimates and also issued Q4 subscriber guidance that was well above consensus. Not surprisingly, analyst reactions to Netflix's Q3 report were generally quite positive.
Nonetheless, thanks in large part to a broader market selloff, the streaming giant currently trades 22% below where it was prior to that strong Q3 report. Shares are also down 36% from a July peak of $423.21, albeit still up 32% over the last 12 months and 137% over the last two years.
Following its recent selloff, Netflix sports an enterprise value (market cap plus net debt) of about $125 billion. That's equal to $853 for each of the 146.5 million streaming subscribers Netflix previously forecast it would have at the end of 2018, and $720 for each of the 173.7 million subs it's expected on average by analysts to have at the end of 2019.
This isn't exactly a dirt-cheap valuation for a company whose most popular U.S. plan costs just $11 per month, whose pricing in many international markets is even lower and which expects to burn at least $6 billion in cash between 2018 and 2019 as it continues making giant content investments. And which will be dealing with competition from Amazon.com (AMZN) , Disney (DIS) and a slew of other well-financed domestic and foreign rivals in the coming years.
However, it's also, arguably, not an exorbitant valuation for a company that boasts pretty high customer satisfaction rates, that has created a scale advantage relative to rivals that lets it finance a content budget of unmatched size (and then use its unmatched viewing data to promote that content to the right subscribers) and which still appears to have a fair amount of long-term headroom to both grow its international base and increase its average subscription price.
All of this is worth keeping in mind as Netflix, fresh off proclaiming that 45 million streaming accounts watched at least 70% of its original horror film Bird Box during its first 7 days of availability, contends with fresh subscriber growth worries. On Tuesday, SunTrust analyst Matthew Thornton cut his Netflix target by $55 to $355, while stating his firm's subscriber growth tracker (it relies on Google Trends data) indicates Netflix added 1.43 million to 1.75 million U.S. subs and 5 million to 6.9 million international subs in Q4. That's below the company's guidance for 1.8 million U.S. net adds and 7.6 million international net adds.
Thornton cautioned that SunTrust's tracker didn't account for the impact of Bird Box and other December content launches. And while Google Trends data has its value, it's far from perfect when it comes to gauging consumer buying and subscription patterns. Regardless, even if Netflix does miss its Q4 subscriber add guidance when it reports on Jan. 17th, a modest miss seems priced in at current levels, given the strength of the guidance the company issued in October and how its stock has performed since.
Unlike many U.S. multinationals, trade war worries aren't a major concern for Netflix, whose Chinese exposure is limited to a content-licensing deal with local video firm iQiyi (IQ) . And while it wouldn't be right to say that Netflix is completely immune to any global economic slowdown, its high customer loyalty/engagement rates and low pricing relative to pay-TV would limit the amount of damage done.It's telling that Netflix's shares rose 1.3% on Thursday, even as the Nasdaq fell 3% in the wake of an Apple ( AAPL) sales warning that had much to do with weakening Chinese demand. Though it's not guaranteed that Reed Hastings' company will top the upbeat guidance it provided three months ago, it still has a secular growth story that could hold up pretty well even if macro conditions weaken some.