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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