Popular entertainment services provider Netflix, Inc. (NFLX - Get Rating) offers TV series, documentaries, feature films, and mobile games across various genres and languages to its members through a host of internet-connected devices.

Recently, rumors have been spreading about NFLX’s potential acquisition of independent streaming platform company Roku Inc. (ROKU). ROKU’s employees are speculating about this possibility since the company closed its insider trading window, which is taken as an indication of a significant business announcement.

If this move materializes, NFLX could make up for its subscriber losses and re-initiate growth with the ad-based revenue model.

The stock has declined 69.2% year-to-date and 51.1% over the past three months to close its last trading session at $185.88. However, it has gained 3.5% over the past five days and 3.3% intraday.

Here are the factors that could affect NFLX’s performance in the near term:

Mixed Financials

For the fiscal first quarter ended March 31, NFLX’s revenues increased 9.8% year-over-year to $7.87 billion. Operating income increased 0.6% from the prior-year quarter to $1.97 billion.

The company’s net income and EPS decreased 6.4% and 5.9% from the same period the prior year to $1.60 billion and $3.53.

Mixed Valuations

In terms of its forward non-GAAP P/E, NFLX is trading at 16.58x, 2.5% lower than the industry average of 17.00x. Its forward non-GAAP PEG multiple of 0.79 is 41.1% lower than the industry average of 1.35.

However, in terms of its forward EV/Sales, the stock is trading at 2.82x, 45% higher than the industry average of 1.95x. Its forward EV/EBITDA multiple of 12.90 is 57.9% higher than the industry average of 8.17.

Mixed Analyst Expectations

The consensus EPS estimates of $2.80 for the quarter ending September 2022 and $10.90 for the fiscal year 2022 indicate a decrease of 12.2% and 3% from their respective prior-year periods. On the other hand, Street revenue estimates for the same periods of $8.12 billion and $32.38 billion reflect 8.5% and 9% year-over-year increases.

POWR Ratings Don’t Indicate Enough Upside

NFLX has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

NFLX has a Growth grade of C in sync with its mixed financial performance in the last reported quarter. The stock has a C grade for Value, consistent with its mixed valuations.

The stock also has a C grade for Stability in sync with its five-year monthly beta of 1.28.

In the 65-stock Internet industry, it is ranked #16. The industry is rated F.

Click here to see the additional POWR Ratings for NFLX (Sentiment, Momentum, and Quality).

View all the top stocks in the Internet industry here.

Bottom Line

The potential takeover of ROKU might boost its prospects. However, no official announcement has been made by the companies yet. Meanwhile, investors have been worried about the company’s subscriber losses. Although the company’s top line grew in the first quarter, its bottom line declined. Hence, I think it might be wise to wait for a better entry point in the stock.

How Does Netflix, Inc. (NFLX) Stack Up Against its Peers?

While NFLX has an overall POWR Rating of C, one might consider looking at its industry peers, Yelp Inc. (YELP - Get Rating), which has an overall A (Strong Buy) rating, and trivago N.V. (TRVG - Get Rating) and Travelzoo (TZOO - Get Rating), which have an overall B (Buy) rating.

NFLX shares were trading at $182.48 per share on Wednesday morning, down $3.40 (-1.83%). Year-to-date, NFLX has declined -69.71%, versus a -19.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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