Internet television network Netflix (NFLX) has a commanding lead in the streaming video market but its growth has slowed. Still, some people might be wondering: Is Netflix stock a buy right now?
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Los Gatos, Calif.-based Netflix started in 1997 as a subscription DVD-by-mail service in the U.S. That innovative service ultimately drove movie rental giant Blockbuster out of business. Netflix shut down its legacy DVD service on Oct. 27 after 25 years in operation.
Netflix began offering a streaming video service with licensed movies and TV series in 2007. It later entered the content production business and released its first major original series, "House of Cards," in February 2013.
Netflix offers its subscription video-on-demand service in over 190 countries.
Subscriber Growth Drives Netflix Story
Netflix stock has benefited from the cord-cutting trend as people quit traditional pay-TV services.
Over the last several years, Netflix has been laser-focused on growing its global subscriber base. It wants to build a competitive moat with scale. It has been investing heavily in local-language original content production worldwide. Netflix stock performance is linked to its net subscriber additions.
But Netflix stock tumbled 51% in 2022 as subscriber growth stalled. That year, it reported two straight quarters of subscriber declines. Growth rebounded in 2023 thanks to the addition of a lower-cost, advertising-supported service as well as a crackdown on unpaid account sharing.
In the third quarter, Netflix added 8.76 million subscribers worldwide, vs. forecasts for 6.06 million. It ended the third quarter with 247.15 million subscribers worldwide.
Netflix also announced price increases for its ad-free service plans in the U.S., U.K. and France.
Netflix stock soared 16.1% on the first trading day after it posted third-quarter results late Oct. 18.
Netflix Stock Fundamental Analysis
In the September quarter, Netflix earned $3.73 a share on sales of $8.54 billion. Analysts had called for earnings of $3.49 a share on sales of $8.54 billion. On a year-over-year basis, Netflix earnings rose 20% while sales climbed 8%.
However, Netflix's financial guidance for the fourth quarter was a tad below Wall Street's targets.
For the December quarter, Netflix predicted earnings of $2.15 a share on sales of $8.69 billion. Analysts had been looking for earnings of $2.17 a share on sales of $8.78 billion in the fourth quarter. In the year-earlier period, Netflix earned 12 cents a share on sales of $7.85 billion.
After a humbling performance in 2022, Netflix says it is focused on profitability. It also is targeting increased revenue with a lower-priced, advertising-supported service tier. Plus, it is looking to monetize rampant account sharing on the service and turn freeloaders into paying customers.
The next major catalyst for Netflix stock could be the company's fourth-quarter earnings report, due on Jan. 23.
Netflix Content Draws Subscribers
Since it started its original content push, Netflix has launched quite a few hit shows. They include "Stranger Things," "Squid Game," "Wednesday," "Ozark" and "Bridgerton."
It also has premiered popular original movies such as "Bird Box," "Extraction," "Murder Mystery," "The Old Guard" and "Red Notice."
Recent buzzworthy shows on Netflix include TV series "One Piece," "Bodies" and "The Fall of the House of Usher." Popular new original movies include action films "The Mother" and "Extraction 2" and dramas "Leave the World Behind" and "The Killer."
Meanwhile, Netflix is facing competition from traditional media companies. That includesMax from Warner Bros. Discovery (WBD), Paramount+ from Paramount Global (PARA) and Peaco*ck from Comcast (CMCSA)-owned NBCUniversal.
Other major services include Amazon (AMZN) Prime Video, Apple's (AAPL) Apple TV+, Walt Disney's (DIS) Disney+ and Hulu.
In 2024, the streaming video market could see consolidation, analysts say.
Netflix Enters Video Game Market
To create a stickier service, Netflix added mobile video games as part of its subscription offering in November 2021. Subscribers can play the games on Android and Apple iOS smartphones and tablets.
Since September 2021, Netflix has purchased four game studios. It bought Night School Studio, Next Games, Boss Fight Entertainment and Spry Fox. It also has opened two new game studios.
Netflix currently offers more than 80 games to subscribers. They include action, arcade, puzzle, racing, sports and casino games.
Netflix Stock Technical Analysis
On Dec. 18, Netflix stock broke out of a 22-week consolidation pattern at a buy point of 485, according to IBD MarketSmith charts. It climbed as high as 500.89 before pulling back.
NFLX stock ended the regular session on Dec. 26 at 491.19.
Netflix hit its record high of 700.99 back in November 2021.
Netflix stock has an IBD Relative Strength Rating of 91 out of 99. The rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.
It has an IBD Composite Rating of 92 out of 99. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Is Netflix Stock A Buy Right Now?
Netflix stock is currently in the 5% buy zone of its recent breakout. That chase zone extends to 509.25, based on IBD trading principles.
In a positive sign, NFLX stock is trading above its 50-day moving average line. However, it has an Accumulation/Distribution Rating of C+, indicating tepid interest among institutional investors.
Netflix stock ranks first out of 20 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. The group ranks No. 76 out of 197 industry groups that IBD tracks. Growth stock investors should focus on leading stocks in the top 40 industry groups.
Be sure to keep an eyeon the overall stock market. If it turns negative, don't try to fight the general stock market direction. Check out IBD's Big Picture column for the current market direction.
To find the best stocks to buy and watch, check out IBD's Stock Lists page. More stock ideas can be found on IBD'sLeaderboard, MarketSmith and SwingTrader platforms.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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