A Look at Netflix’s Valuation Metrics
Earlier in this series, we learned about some key updates for Netflix. In this part of the series, we’ll look at Netflix’s (NFLX) value metrics.
Common valuation multiples for companies include the PE (price-to-earnings), EV-to-EBITDA,1 PCF (price-to-cash flow), and PFCF (price-to-free cash flow) ratios.
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Price-based multiples consider value from a shareholder’s perspective. EV-based multiples help investors understand the value of a company from the point of view of the holders of its capital. These are forward multiples based on the expected value of the denominator after a year.
Is Netflix overvalued?
As the above graph indicates, Netflix (NFLX) has a high forward EV-to-EBITDA multiple of 36.5x and a PE multiple of 72.8x. In contrast, peers 21st Century Fox (FOXA), Time Warner (TWX), and CBS (CBS) have forward EV-to-EBITDA multiples of 9.7x, 10.5x, and 11.3x, respectively.
Netflix’s value proposition
In the US (SPY), Netflix is facing increased video streaming competition as media companies go direct-to-consumer and new players enter the market. In international markets, Netflix is expanding rapidly, but it isn’t profitable yet.
Netflix faces other challenges in international markets, including susceptibility to currency fluctuations, language barriers, and varying Internet speeds. It remains to be seen how Netflix will withstand competition in domestic markets and overcome its international challenges.
- enterprise value to earnings before interest, tax, depreciation, and amortization ↩