Netflix (NFLX -1.35%) has long been a battleground stock as critics jeered the company for its cash burn for years and dismissed its business model.
Today, Netflix is free cash flow positive, but the company faces other challenges, including rising competition and a maturing streaming market. However, Netflix is also tapping into new revenue streams like advertising, and it remains the clear leader in the streaming industry.
So is Netflix a buy today? Keep reading to hear from a bull and a bear on the stock.
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Netflix is adapting quickly
Jeremy Bowman: It's true that Netflix is facing a fair number of challenges, including rising competition and a maturing market, but the company still has the ability to return to steady growth -- and it expects to do so.
First, it's tapping into a massive advertising market. Netflix has more than 200 million members around the world, and as advertising has shifted to digital channels, the streaming stock is perfectly situated, especially as connected TV ads are among the most valuable in the advertising industry. That's because they offer both the engagement of video and the targeting of digital ads.
Netflix is facing a maturing market in the U.S., but it has growth opportunities in the rest of the world. The Europe, Middle East, and Africa region recently became the company's biggest, with 76.3 million subscribers. In the large Asia-Pacific region, Netflix has fewer than 40 million subscribers, but it's growing quickly and helped by investments in the area with shows like Squid Game.
Netflix also has an edge over the new crop of streamers, since it's profitable while its peers are losing billions of dollars. After high-profile launches, many of these rivals are focused on cutting costs and raising prices, which should strengthen Netflix's advantage over the competition.
Finally, Netflix also has new monetization opportunities with its push into mobile gaming and its crackdown on password sharing.
Netflix is coming off a strong round of subscriber growth in the fourth quarter, and if it does the same in the first quarter, the stock should jump again.
Netflix is no longer alone
Parkev Tatevosian: Netflix might be an excellent company and the pioneer of the streaming industry, but this might not be the best time to buy the stock. After over a decade of having the streaming industry nearly to itself, competition has jumped in. People now have a multitude of options when choosing streaming content subscriptions. Why is that bad news for Netflix? Competition steals customers and makes operations more expensive.
Indeed, Netflix's revenue increased from $29.7 billion in 2021 to $31.6 billion in 2022. Its growth rate of 6.5% in that year was its slowest ever. To make matters worse, Netflix's operating income fell from $6.2 billion to $5.6 billion. Netflix had to work much harder (spend more on content) to keep existing customers and add new ones.
Admittedly, some of the difficulty stems from the economic reopening. Following nearly two years of spending most of their time at home, people are unleashing pent-up demand for away-from-home activities. Still, competition can be blamed for some of the slowdowns, and competition is not temporary. Rivals have spent billions launching their streaming services, making it unlikely they will go away anytime soon.
NFLX PE Ratio data by YCharts
With the fight for streaming customers raging, I'm not sure I would want to pay for Netflix's stock when it trades at a trailing 12-month price-to-earnings ratio of 34. Competition is likely to restrain Netflix's profitability.
