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A Look at Netflix’s Valuation Metrics

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Valuation metrics

Earlier in this series, we learned about some key updates for Netflix (NFLX). In this part of the series, we’ll look at how Netflix’s value proposition stacks up against those of its peers. Common valuation multiples for companies include the PE (price-to-earnings), EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), PCF (price-to-cash flow), and PFCF (price-to-free cash flow) ratios.

Price-based multiples consider value from a shareholder’s perspective. EV-based multiples help investors to 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.

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Is Netflix overvalued?

As the graph above indicates, Netflix has a high forward EV-to-EBITDA multiple of 52.8x and a PE multiple of 336.9x. In contrast, peers 21st Century Fox (FOXA), Time Warner (TWX), and CBS (CBS) have forward EV-to-EBITDA multiples of 8.9x, 10.6x, and 11.1x, respectively.

Netflix’s value proposition

In international markets, Netflix continues to expand rapidly, but it hasn’t become profitable yet. The company also 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. Stay tuned!

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