Looking at the pre-market price action, NFLX stock could fall to the lowest level since 2018, which would mean that it would have lost a lot more than it gained during “stay-at-home” trading in 2020. What’s the 2025 forecast for Netflix and will the company be able to survive in the long term?
Why is NFLX stock falling?
As the stay-at-home trade unwound, names like Netflix, Peloton, and Zoom Video Communication came under pressure. Netflix is battling a severe growth slowdown partially due to the pull-forward demand in 2020. Also, the company has been facing margin pressures since it has been spending aggressively on new content to attract new subscribers.
In a nutshell, sagging topline growth and margin pressure are possibly the worst combinations for any business. The fact that NFLX stock was trading at exorbitant valuations didn't help matters. Richly valued growth companies have been under pressure amid the aggressive monetary policy tightening by the U.S. Federal Reserve.
When do companies go out of business?
Companies go out of business when either the demand for their product or services plummets or the business ceases to be financially viable after persistent losses. Many times, companies go out of business when they aren't able to service their debt.
Is Netflix going out of business?
Netflix isn't going out of business, at least in the near foreseeable future. The company is facing short-term growth issues and reported a drop in subscribers in the first quarter of 2022, but the core business still looks healthy, even if it's past its prime.
Netflix has almost 222 million global paying subscribers. The company is also profitable and its leverage is also manageable. At the end of March, Netflix had a gross debt of $14.6 billion and held $6 billion worth of cash on its balance sheet.
This gives us a net debt of $8.6 billion. While the gross debt is towards the upper end of the company’s target range of $10 billion–$15 billion, the trailing leverage multiple is 1.3x, which seems reasonable.
How the NFLX stock 2025 forecast?
It isn't going to be an easy ride for Netflix considering the increasing competition from other streaming companies. Disney has been growing fast and had 129.8 million global paying subscribers at the end of the first quarter of fiscal 2022. That seems to be an impressive feat considering the fact that Disney only entered streaming in the back half of 2019.
Disney has set itself an ambitious target of reaching 230 million–260 million global paying subscribers by the end of fiscal 2024.
Netflix has been looking at alternate ways to revive its fortunes. The company got into video gaming in 2021 and is now considering an ad-supported version as well. The company faces the contrasting choices of protecting its margins while growing its top line and subscriber base.
On the positive side, streaming penetration is expected to increase more in the U.S. as well as internationally. Emerging markets are another long-term growth driver for Netflix. Streaming penetration in these regions is still below that in developed markets.
After the crash, Netflix seems to offer a good entry point, especially for long-term investors. If you're comfortable holding NFLX stock until 2025, it looks like an attractive buy at these prices.