Netflix (NASDAQ:NFLX) reported earnings on Tuesday, and the company’s co-CEO Ted Sarandos didn’t give investors any reason to be optimistic about the numbers. The company is laying off about 6% of its workforce, and Sarandos recently said the company is “just not growing as fast as I would like.”
These aren’t things investors want to see before the streaming company’s earnings release, as they could suggest a weak quarter is in store. And that’s bad news for a stock that has already been in free fall for much of the year.
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The company is still on track to meet its guidance
Despite the challenges Netflix is currently facing, according to a memo seen by CNBC, management told employees it was still “on track to achieve our full-year guidance.”
When the company last reported earnings in July, it reported 13% revenue growth. It also projects that for the full year, its revenues will increase by about 13 to 14 percent, for a total of about $51 billion. This is a decent growth rate, but one that management clearly doesn’t like. This also comes as Netflix increased prices this year for all of its plans; investors may have expected better growth.
Netflix is investing more in sporting content and events and so there may be more need to demonstrate the benefits of these investments.
Netflix stock is cheap, but is it likely to fall?
It’s been a particularly bad year for Netflix, as its shares have fallen more than 25% so far, while the S&P500 increased by around 13%. This is generally not what investors expect to see in a growing company, and it speaks to the market’s concern about Netflix’s future growth; a premium might be difficult to justify given the uncertainty ahead.
Currently, the stock is trading at a forward price-to-earnings multiple of less than 19, which is in line with the average for stocks in the S&P 500. However, the stock arguably deserves a better multiple given its growth prospects, as sports, gaming, and international expansion could still open up more potential for the company in the long term.
Its growth rate remains solidly in the double digits, which is an encouraging sign: Even with multiple price hikes over the years, consumers continue to see compelling value in its streaming plans. The company may need some adjustment, but I don’t think it’s in as dire a situation as its liquidation this year might suggest; At a reduced valuation, now could be a great time to buy the stock, as I don’t think it’s likely to fall much further.
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