For all the wrong reasons, Netflix (NFLX +0.53%) has been front and center in the news of late. The popular video streaming provider enjoyed a massive bull run during the pandemic as global shutdowns triggered a notable influx of consumers looking for fresh entertainment. But a disappointing first-quarter earnings report, coupled with broad negative sentiment currently surrounding tech stocks, has caused shares of the streaming giant to plunge nearly 70% year to date.
The company's $7.87 billion in sales in the first quarter of 2022 missed consensus estimates by a mere 1%, while its earnings per share of $3.53 effortlessly beat Wall Street forecasts by 21%. Unfortunately, the earnings beat was vastly overshadowed by weakness in its subscriber count. Netflix experienced an unforeseen net loss of 200,000 subscribers with another loss of two million expected in the second quarter.
Still, there are plenty of reasons to like the stock, especially at today's price levels. Here are three justifications for buying Netflix shares right now.
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1. A historically low valuation
As a result of the sell-off, Netflix is trading at a tempting valuation. From 2017 through 2021, the streaming titan had a median price-to-earnings multiple of 92. Today, the stock is trading at just 17 times earnings, a historically low valuation.
Data by YCharts.
It's reasonable for a company's valuation to compress when growth unwinds, but does Netflix truly deserve such a low multiple today? That's up for debate, but when I compare the company's business now to where it was prior to the pandemic, it's crystal clear Netflix is in a better position now. And while growth may be tested for the foreseeable future, the company still enjoys plenty of room for expansion in the years ahead.
2. Elite market positioning
Despite headwinds related to its subscriber count, Netflix remains the industry's top dog. The company has the largest audience among streamers, controlling 45.2% of the global video streaming industry and 6.4% of total U.S. TV time. And while Netflix may be experiencing growing pains, the company remains the world's largest streaming service on all fronts: paid memberships, total engagement, revenue, and net profit.
NASDAQ: NFLX
Key Data Points
We're still only in the middle innings of streaming adoption, too. The global industry is projected to register a compound annual growth rate (CAGR) of 20% through 2029, translating to a market potential of up to $1.7 trillion by that time. Given Netflix's elite market positioning today, it's safe to say the company should maintain financial success in the long run.
3. Improving content
As the streaming industry becomes increasingly crowded, it's very important that companies focus on providing stellar options to consumers -- this will distinguish the haves from the have-nots. Fortunately for Netflix, the company has done an incredible job building out its content library over the years. From initially offering just second-run TV series and films to shifting to its own original material, the company has truly evolved into a global entertainment provider.
Winning the most Emmy awards of any TV network and boasting six out of the 10 most-searched shows globally in 2021, the company has taken a major leap forward with respect to the quality of its programming. Netflix is committed to doubling down on story development and content creation, and investors should expect superior content from the streaming juggernaut in the years ahead.
Netflix is a solid buy for long-term investors
Netflix has certainly seen better days, but that doesn't mean it won't rebound in the coming years. In fact, at tumultuous moments in the market like now, investors are presented with golden opportunities to purchase superb companies at low valuations. Don't expect Netflix to resolve its problems overnight -- the streaming giant will have to get a handle on near-term headwinds -- but investors with long time horizons should feel extremely comfortable buying this stock at current price levels.
