FAANG Netflix analysis - Squid Game is its biggest TV show ever but could NFLX stock price break $200?

NFLX growth peaked in 2020 and USD strength is not helping. Is acquiring EA on the horizon?

FAANG Netflix analysis - Squid Game is its biggest TV show ever but could NFLX stock price break $200?
Photo by Sung Jin Cho / Unsplash

Perhaps the one chart that can summarize NFLX's situation is from its Q4-21 Shareholder Letter below.

Growth has matured and slower as each year goes by.

Remember when USD weakens, Buy NFLX

According to management,

With ~60% of our revenue outside of the US due to our international success, we estimate that the US dollar’s appreciation over the past six months has cost us roughly $1 billion in expected 2022 revenue (as a reminder, we don’t hedge). With the vast majority of our expenses in US dollars, this translates into an estimated two percentage point negative impact on our 2022 operating margin.

As a result, operating margin is expected to come off in 2022E. Though NFLX has been delivering three percentage point annual linear progression in the past few years.

According to management,

...the greatest opportunity in entertainment is the transition from linear to streaming and that with under 10% of total TV screen time in the US, our biggest market...

so the land grab remains as future generations spend less time on TV. However, it also means NFLX is competing for screen time with other interactive entertainment such as social media and gaming.

In fact, NFLX has hired a former EA (Electronic Arts) and Facebook executive to lead gaming and has acquired Next Games in March 2022.

According to management,

As a reminder, we prioritize our cash to reinvest in our core business and to fund new growth opportunities like gaming, followed by selective acquisitions.

Could NFLX end up acquiring EA? We will be exploring EA in another note.

NFLX is currently trading at 35x earnings under slowing growth and rising rates.

We think Netflix gaming as a new venture needs to be the next breakthrough in growth to boost NFLX stock price.

Finally, as a reference, according to management,

The dystopian Korean thriller Squid Game- a late Q3 release that broke through globally early in Q4 - generated 1.65 billion hours viewed in its first four weeks and is now our biggest TV season ever.

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