Nasdaq Bear Market: Is This Stock Stream A Guaranteed Buy in 2023?

Last year was a terrible year for tech nerds Nasdaq Composite Index. Its value decreased by 33% over the 12-month period. But one bad year shouldn’t stop investors from pouring money into the markets. In fact, there could be some great buying opportunities right now if you are willing to stay optimistic.

One such business to consider is Netflix (NFLX -1.12%). the above Service inventory flow It’s up 60% over the past six months. And after publishing a strong quarter through the end of 2022, the narrative may have changed from negative to positive for this innovator.

This is why Netflix could be a surefire buy for your portfolio in 2023.

Click play on subscriber growth

For the fourth quarter of 2022, which ended December 31, Netflix reported revenue of $7.9 billion, up 2% year over year. While this is a slowdown from the brisk growth that shareholders are used to seeing, it’s worth noting that the top line number has been negatively impacted by a stronger dollar. Since the business generates 54% of sales outside the United States and Canada (UCAN), where foreign revenue is converted into dollars, Netflix has had a hair cut.

However, what investors were really encouraged by was the company 7.7 million new subscribers during the quarter. That significantly exceeded management’s expectation of 4.5 million additions, which is probably why shares are up 16% since the earnings announcement.

The cheapest ad-based Netflix tier, which launched in November, is off to a strong start in that the interaction between these customers is similar to that of the ad-free plans. What’s more, there is minimal disassembly, or existing users trade down to the less expensive option. The leadership team believes that the ad tier can account for 10% of total revenue over time.

After the company lost 1.2 million members in the first six months of 2022, many Netflix bears say broadcast service Growing done. This is clearly not the case. In fact, all four geographies, even the mature UCAN region, posted strong gains.

Not the old Netflix

Longtime Netflix shareholders should feel comfortable with the company’s next phase. Co-founder Reed Hastings is stepping down His title is Co-Chief Executive Officer To move on to the CEO. Former Chief Operating Officer Greg Peters will join Co-CEO Ted Sarandos to lead the entertainment juggernaut. It’s hard to underestimate Hastings’ importance in driving the rise of Netflix and the secular shift to internet-enabled television.

Investors can also expect the days of cash-burning Netflix to be a thing of the past. the work Generate positive free cash flow (FCF) $1.6 billion in 2022, at the high end of what management projected last quarter. For the current year, Netflix expects to earn $3 billion from FCF. With cash content expenses this year expected to remain in the $17 billion ballpark, any additional revenue should boost FCF’s number.

And with this strengthened financial position, something the holdouts never thought would happen, Netflix plans to continue with share buybacks this year, last buying back its stock in 2021. It will be interesting to see how management balances trying to deliver growth with repurchases. capital to investors.

Moreover, Netflix currently has $14.4 billion in debt on its balance sheet, all at a fixed rate. The business is in much better shape than some of its live broadcast rivals. For example, Discovery Warner Bros It has a massive debt of $50.4 billion, while Disney $45.3 billion.

Consider evaluation

Besides returning to membership growth and finally reaching a positive sustainable FCF, potential investors should look at the stock’s valuation to become more optimistic about the company. Even with the stock up significantly over the past six months, as of this writing, shares are trading at a price of Price to earnings 37 percent, well below the three-, five- and 10-year late Netflix averages.

Wall Street analysts estimate that Netflix’s earnings per share will increase at a compound annual rate of 19.7% between 2022 and 2027. This means that currently, the stock is trading at less than 15 times its projected 2027 EPS of $24.50. If the multiple contracts add up to 30, that still translates to a 15% return over the next five years, which is good for a multiple.

The pessimism that surrounded Netflix early last year seems to have turned to optimism. Investors may take the latest quarter’s results as a signal to buy the stock.

Neil Patel He has no position in any of the aforementioned shares. The Motley Fool has and recommends positions at Netflix and Walt Disney. The Motley Fool recommends Warner Bros. Discovery recommends the following options: January 2024 long calls of $145 on Walt Disney and January 2024 short calls of $155 on Walt Disney. The Motley Fool has a file Disclosure policy.

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