Netflix's (NFLX 1.82%) stock price has only risen about 6% over the past 12 months as the S&P 500 advanced 26%. Those tepid returns made the streaming video giant the second-weakest member of the FAANG cohort, and it only barely beat Amazon's (AMZN 2.50%) anemic gain of 1%.

But as higher interest rates cause investors to rotate away from the market's higher-growth, unprofitable, and speculative tech stocks, could Netflix become a safe haven investment for a wobbly market? Let's take a fresh look at its business before it posts its next earnings report on Jan. 20.

A person eats popcorn while watching a video on a laptop.

Image source: Getty Images.

How fast is Netflix growing?

Netflix remains the largest paid streaming video platform in the world in terms of total subscribers and annual revenue.

Its year-over-year growth in paid subscribers and revenue accelerated in 2020 as people stayed at home and watched more streaming video during the pandemic. But in 2021, its growth decelerated as the COVID-19 restrictions were relaxed and people spent less time at home.

Period

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Paid Subscribers (Millions)

195.15

203.66

207.64

209.18

213.56

Growth (YOY)

23.3%

21.9%

13.6%

8.4%

9.4%

Revenue (Billions)

$6.44

$6.64

$7.16

$7.34

$7.48

Growth (YOY)

22.7%

21.5%

24.2%

19.4%

16.3%

Source: Netflix. YOY = Year-over-year.

Netflix's operating margins also rose to unusually high levels throughout 2020 and most of 2021 as the COVID-19 restrictions temporarily disrupted its production and licensing of new shows and movies.

As a result, Netflix's free cash flow (FCF) -- which stayed negative throughout 2019 -- turned positive and increased significantly throughout the first three quarters of 2020. Its earnings per share (EPS) also grew at a healthy rate throughout most of the past five quarters.

Period

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Operating Margin

20.4%

14.4%

27.4%

25.2%

23.5%

Free Cash Flow (Millions)

$1,145

($284)

$692

($175)

($106)

EPS Growth (YOY)

18%

(8%)

139%

87%

83%

Source: Netflix.

But here comes the post-lockdown swoon

Netflix's growth over the past year has been impressive, but it expects its subscriber and revenue growth to cool off as it ramps up its spending on new content again in a post-lockdown world.

For the fourth quarter, it expects its paid subscribers to grow 9% year over year to 222.06 million, and for its revenue to increase 16.1% year over year to $7.71 billion. That only represents a slight slowdown from the third quarter, but it also expects its operating margin to contract to 6.5%, and for its EPS to decline 33% as it accelerates its production of new content.

Netflix's ongoing international expansion will also likely exacerbate that pressure, since its subscriptions are much cheaper in many overseas markets. In India, one of its fastest-growing markets, Netflix recently slashed the average price of its subscriptions by up to 60%.

Netflix should certainly launch new content and expand overseas to widen its moat against Walt Disney (DIS 1.62%), which ended last quarter with 179 million total streaming subscribers across Disney+, Hulu, and ESPN+. Unfortunately, that combination of slower growth, tough post-lockdown comparisons, and rising operating expenses kept the bulls at bay over the past year.

What about the forecasts and valuations?

Netflix faces some near-term headwinds, but analysts still expect its revenue to rise 19% in 2021 and 15% in 2022. They also expect its EPS to grow 77% in 2021 and increase another 22% in 2022 -- which suggests it won't crush its own earnings growth with its higher content costs.

Based on those expectations, Netflix's stock trades at 47 times forward earnings. This makes it the second-most-expensive member of the FAANG cohort. Only Amazon has a higher multiple at 54 times forward earnings.

Therefore, we can't really consider Netflix an attractive safe haven FAANG stock like Meta Platforms, Apple, and Alphabet yet. However, it's still one of the best plays on the secular growth of the streaming market and the death of "linear TV" platforms like cable and satellite TV, so it could maintain its higher multiple as long as it remains the market leader.

Stick with the other FAANG stocks for now

I like Netflix as a long-term investment, but I think the other FAANG stocks (except for Amazon) will likely fare better during a market downturn, for three simple reasons: They face easier post-lockdown comparisons, they aren't significantly ramping up their spending as their revenue growth decelerates, and their stocks are trading at more attractive valuations.

Therefore, I would keep Netflix on my watchlist, but I definitely wouldn't pull the trigger as long as rising interest rates punish the pricier growth stocks.