For all the wrong reasons Netflix (NFLX 2.17%) been front and center in the news lately. The popular video streaming provider has seen a massive bull run during the pandemic, as global shutdowns prompted a notable influx of consumers looking for new entertainment. But a disappointing first-quarter earnings report, coupled with broad negative sentiment currently surrounding tech stocks, has caused the streaming giant’s shares to plummet nearly 70% year-to-date.
The company’s revenue of $7.87 billion for the first quarter of 2022 missed consensus estimates by just 1%, while earnings per share of $3.53 easily topped Wall Street forecasts by 21%. Unfortunately, the profit increase was overshadowed by the weakness in the number of subscribers. Netflix recorded an unforeseen net loss of 200,000 subscribers, with another expected loss of two million in the second quarter.
Still, there are plenty of reasons to like the stock, especially at today’s price level. Here are three reasons to buy Netflix stock right now.
1. A historically low valuation
Netflix is trading at an enticing valuation as a result of the sell-off. From 2017 to 2021, the streaming titan had a median price-to-earnings multiple of 92. Today, the stock trades at just 17 times earnings, a historically low valuation.
It’s reasonable for a company’s valuation to fall when growth slows, but does Netflix really deserve such a low multiple today? That’s up for debate, but when I compare the company’s business now to how it was before the pandemic, it’s clear that Netflix is in a better position now. And while growth may be tested for the foreseeable future, the company still enjoys plenty of room for expansion in the years to come.
2. Elite market positioning
Despite headwinds in terms of subscriber count, Netflix remains the industry’s top dog. The company has the largest audience among streamers, controlling 45.2% of the global video streaming industry and 6.4% of all US TV time. And while Netflix is suffering from growing pains, the company remains the world’s largest streaming service on all fronts: paid memberships, total engagement, revenue, and net income.
Even with the introduction of streaming, we are still in the middle. The global industry is forecast to register a compound annual growth rate (CAGR) of 20% until 2029, which represents a market potential of up to US$1.7 trillion by then. Given Netflix’s elite market positioning today, it’s safe to say that the company should remain financially successful over the long term.
3. Improving Content
As the streaming industry becomes more and more crowded, it’s very important that companies focus on providing consumers with great options – this will separate the haves from the have-nots. Luckily for Netflix, the company has done an incredible job building its content library over the years. From initially offering only reboots of TV series and films to switching to its own original material, the company has grown into a global entertainment provider.
With the most Emmy awards of any television network and six of the top 10 most searched shows worldwide in 2021, the company has made a huge leap forward in terms of the quality of its programming. Netflix is keen to double down on story development and content creation, and investors should expect superior content from the streaming juggernaut for years to come.
Netflix is a solid buy for long-term investors
Netflix has certainly seen better days, but that doesn’t mean it won’t recover in the years to come. In fact, turbulent moments in the market like this present investors with golden opportunities to buy great companies at cheap valuations. Don’t expect Netflix to solve its woes overnight — the streaming giant will need to navigate near-term headwinds — but investors with a long-term horizon should feel comfortable buying this stock at current price levels.