Netflix (NFLX 0.40%) and Facebook (FB 2.29%) have delivered life-changing gains to their long-term investors. Millions -- and in Facebook's case, billions -- of people around the world are spending an increasing portion of their lives using these services every day. And as the streaming video leader and social media titan have become indispensable to their users, they've delivered incredible returns to their shareholders.
But which of these market stars is the better buy today?
Image source: Getty Images.
Growth
Facebook's revenue and earnings growth have far exceeded Netflix's in recent years.
FB Revenue (TTM) data by YCharts
However, over the next five years, Wall Street expects Netflix to increase its earnings per share by more than 70% annually, fueled by margin-expanding price hikes and booming international growth. During this same time, analysts project that Facebook's EPS will rise by about 28% annually, driven by the growth of its Instagram, Messenger, and WhatsApp platforms.
For businesses this size -- Netflix and Facebook's market caps currently check in at $90 billion and $535 billion, respectively -- these growth rates are remarkable. But with its significantly higher earnings growth forecast for the next five years, Netflix has the edge over Facebook in terms of future growth prospects.
Advantage: Netflix
Financial strength
Whether or not Netflix and Facebook can fulfill their awesome growth potential will be decided in large part by their financial fortitude. Let's see how they stack up in this regard.
|
Metric |
Netflix |
|
|---|---|---|
|
Revenue |
$10.9 billion |
$36.5 billion |
|
Operating income |
$0.7 billion |
$17.4 billion |
|
Net income |
$0.4 billion |
$15.2 billion |
|
Operating cash flow |
($1.9 billion) |
$21.5 billion |
|
Free cash flow |
($2.1 billion) |
$15.7 billion |
|
Cash |
$1.7 billion |
$38.3 billion |
|
Debt |
$4.9 billion |
N/A |
Data source: Morningstar.
Facebook is a financial powerhouse, with nearly $16 billion in annual free cash flow and more than $38 billion in cash on its pristine balance sheet. Netflix, meanwhile, did not generate positive free or operating cash flow over the past year. It also has over $3 billion in net debt. So in terms of financial strength, this battle is particularly one-sided, with Facebook as the clear leader.
Advantage: Facebook
Valuation
No better buy discussion should take place without a look at valuation. Let's check out some key value metrics for Netflix and Facebook, including price-to-earnings (P/E) and price-to-earnings-to-growth (PEG) ratios.
|
Metric |
Netflix |
|
|---|---|---|
|
Trailing P/E ratio |
204.62 |
35.69 |
|
Forward P/E ratio |
89.44 |
27.78 |
|
PEG |
2.21 |
1.10 |
Data source: Yahoo! Finance.
On all three metrics, Facebook's stock is considerably less expensive than Netflix's stock, making the social media king the better bargain.
Advantage: Facebook
The better buy is...
Netflix and Facebook are both terrific businesses, but with its superior financial strength and more attractively priced stock, Facebook is the better buy today.
