When Netflix (NFLX -0.72%) released its fourth-quarter earnings results, investors were disappointed to see slowing subscription growth numbers. The stock sold off following the results, but with its price-to-sales ratio at historic lows, could Netflix still be a good investment? 

In this video clip from "The Virtual Opportunities Show," recorded on Feb. 15, Motley Fool contributor Jose Najarro runs through the company's fourth-quarter numbers, and gives his perspective on how investors should approach the streaming giant.

 

Jose Najarro: The company I'm actually going to talk about today is Netflix. Let me see if I can share my screen real quick. Give me one quick second. Here we go. Share. Netflix, I'm just going to take a quick look at some updates from their last earnings. Last earnings, their quarter-four revenue, they had about $7.7 billion in revenue. That was up 16% year over year, and they did have strong growth. Sub growth, they grew about 8.28 million subscribers last quarter. That was a 8.9% year-over-year growth, one of their lowest growth compared to previous. One of the things affecting Netflix right now is this might no longer be the growth story it used to be, doesn't necessarily mean it's a bad thing. It's just usually when you see valuations maybe decrease a little bit since it's not growing at those levels that many growth investors want. In their last earnings, they reported about 221 million subscribers. I think Demitri just gave some updated numbers there, but they did miss expectations of about 8.5 million. This was even though last quarter, it was a huge popularity of the show called Squid Game, so many investors were expecting strong results. Again, I don't think this is necessarily a bad thing. It's just telling me that, "Hey, Netflix, even though they are producing still great content, shows that become super popular, the company might have be stalemating in certain markets and that's why we're not seeing that strong growth.

For quarter one, they still expect revenue to be 7.9 billion, up about 10% from the previous year. But these are some of the lowest growth the company has guided for. I think the previous guidance was in the 20s, now they're guiding for 10% year-over-year growth. Again, just because Netflix might not be the growth story it was before doesn't mean it's a bad investment. It's just, hey, maybe we should look at it with a different pair of eyes. They do mention that low guidance for this upcoming quarter is due to not much content coming out. Like we mentioned in previous shows that hey, some people just tend to pay for subscriptions when certain shows come out, so with low shows coming out this upcoming quarter, they don't expect much subscription. I actually like this graph that they show with the overall subscription growth from 2020-2021, all the past five years, we can see 2018 and 2019 were pretty similar, then 2020 came in and COVID happened and everybody was just streaming at home, so you see that strong growth. 2021, they mentioned that it was more like a rubber band effect. How hey, too many people subscribed in 2020, so less people were going to subscribe in 2021. I'm pretty sure if you take the average of 2020 and 2021, you would actually get probably somewhere near this normal line that they have before.

What is pretty interesting, as many investors were hoping that 2022 would go back into this track. But it seems like it's starting again to slow down. Again, this doesn't mean Netflix is a bad or any form of shade toward Netflix, it's just, hey, maybe it might not be the growth story it used to be. They are focusing in the gaming aspect. I personally have not seen or heard many people play their games or use some, outside of just testing it out once. But obviously, that's a great perk for subscriptions. It's free, it's not adding any cost to it. Netflix also believes that hey, building their fandom is very important. Some of the shows like Bridgerton, Cobra Kai, they have a huge, what's the other one? [Stranger] Things. They all have strong following. They created this website to be able to share things like behind the scenes. Pretty interesting. Not something I enjoy, I think they would have probably been better off spending that money in social aspect in some other social platform instead.

One thing that we did see is most subscribers are coming from international regions, mainly the APAC, Europe, Middle East, and Africa as well. They are expected to grow in India and in Latin America. But those two places are seeing some form of issues. India has a lot of competition in the streaming platform with very low prices. They actually had to lower their prices in India and Latin America due to the overall currency exchange not being in their favor, they're also experiencing some lag. But on some great news, Netflix is expected to be free-cash-flow positive by the end of this year and beyond, which is pretty good for a company that, hey, just focuses on creating new content. New content is very expensive to make. Being free-cash-flow positive, it's going to allow this company to make more shows. Also the shows that they have continue to do pretty well. For 2021, six out of the 10 top shows on Google Search were Netflix shows, Squid Game, Bridgerton, we can see Cobra Kai were some of them just on the top five. Only two I think came out from Disney+ and I actually don't know where the other two came from. But what you can see, Netflix has definitely made a name for themselves. Even some of the strong movies, two of the top 10 movies were made from Netflix.

It just shows the overall strength that this company has. Who knows? Maybe they might spend a few million dollars in each show. But because they focus on creating so much content, as long as one of them is a hit, it can really drive subscription to the overall platform. Price movement has been a little bit sketchy since last earnings, it's pulled down a nice amount. Obviously because of this company no longer being the growth story that it was before. But I forgot to add the chart. If we take a look at price-to-sales ratio, it's one of the cheapest price-to-sales ratio Netflix has ever been. Again, investors might not be pricing it to that full growth story. Actually, this is old, so I don't have much on my thoughts. The only thing I want to say is, and let me just stop sharing here, overall the platform seems to be still be super strong, six out of the top 10 shows were in Netflix. I just believe and Netflix is definitely focusing on building a lot of new content. They even purchased new studios to focus in that market. It's one I'm keeping an eye out, especially with this pulled down. Then also becoming free-cash-flow positive, not needing to do any form of financing outside of what they do. One I'm keeping my eyes out for the next few months while I do a little bit more research.