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Netflix valuation drops as investors reset expectations for growth
Netflix shares fell after its third-quarter revenue outlook missed expectations, dragging its valuation down from about 45 times expected earnings a year ago to 18.5 times.
Netflix is still growing, but investors have stopped paying a tech-like price as its revenue growth cools, a Yahoo Finance and Reuters analysis highlighted.
Shares of the streaming company slid after its third-quarter revenue forecast came in below expectations, extending a drop that has cut the stock nearly in half since last summer.
The analysis said Netflix’s price-to-earnings multiple, which once topped 70 times expected profits and was still near 45 times a year ago, has since fallen to 18.5 times. It added that expected earnings have continued to rise, while investors are assigning a lower price as revenue growth moderates from roughly 16% to 13%.
The piece argued that the market’s repricing reflects concerns about how Netflix needs to repeatedly refresh its content library, citing investor Michael Burry’s view that traditional media owners have more evergreen content. It also noted that the stock is now trading below the technology and communication services sectors on expected earnings as earnings season begins.