The tech-heavy Nasdaq-100 index is down by more than 10% from the all-time high it set last month, but it was down by as much as 13% earlier in March. A broad sell-off swept the U.S. stock market as historically high valuations ran up against rising fears and uncertainties about tariffs, trade wars, and the macroeconomic outlook, triggering a risk-off sentiment among investors.
But historically, the U.S. stock market has always eventually followed its downturns with recoveries to new highs, so corrections have typically been great buying opportunities. Many high-quality stocks declined sharply in recent weeks --among them, Netflix (NFLX 0.10%), which was down by as much as 18% from its peak, and now trades about 8% below it.
Netflix started to recover but investors can still scoop up its stock at a discount, and according to Wall Street, that might be a smart move. The Wall Street Journal tracks 54 analysts who cover Netflix stock, and the majority have assigned it the highest possible buy rating, with none rating it a sell.
Image source: Netflix.
Netflix won the streaming wars
In a note to clients earlier this month, Wall Street research firm MoffettNathanson said "Netflix has won the streaming wars. Case closed." Simultaneously, it raised its price target for the stock from $900 to $1,150. The firm might be right -- Netflix ended 2024 with 301.6 million paying subscribers, placing it miles ahead of Amazon's Amazon Plus, which has an estimated 200 million customers (Amazon doesn't separate Prime subscribers from Prime Video users), or Disney's Disney+ which has 124.6 million subscribers.
That incredible scale also turned Netflix into a profit-generating machine, setting it even further apart from most competing services, many of which have yet to deliver consistent profitability. Netflix generated a record $8.7 billion in net income last year, a 61% increase from its 2023 result. That was on $39 billion in revenue, which was also a record.
Netflix's recent momentum started with its crackdown on password sharing a couple of years ago, but it accelerated after the introduction of a cheaper subscription tier supported by advertising in November 2022. Priced at $7.99 per month, it's much cheaper than its standard tier ($17.99 per month) or premium tier ($24.99 per month).
In the fourth quarter, the ad-supported tier accounted for 55% of all new signups in the countries where it's available, a clear reflection of how it has become the cornerstone of Netflix's growth. Plus, even though it's cheaper for subscribers, those ad-tier members will grow more valuable for the company over time as the flywheel gathers momentum. Having more ad-watching members will entice more businesses to advertise on Netflix, which should also help it boost the prices it can charge for those ads over time, increasing the company's revenue per user.
In fact, Netflix said its advertising revenue doubled in 2024, and management expects it to double again this year.
NASDAQ: NFLX
Key Data Points
Live programming could fuel its next phase of growth
There is another significant benefit to Netflix's scale: It can outspend its competitors when it comes to creating and licensing content. The company plans to invest $18 billion in its slate this year alone, and it's likely to focus heavily on live programming after pulling off several successful events last year.
There was The Roast of Tom Brady in May, followed by the Mike Tyson vs. Jake Paul boxing match in November which became the most streamed live sporting event ever at the time. Netflix streamed two Christmas Day NFL games, which attracted 30 million and 31 million viewers, respectively. They were the most streamed games in the league's history.
Here's why live events are so important: Netflix says its average subscriber spends around two hours on the platform each day -- but since the average NFL game runs for over three hours, it will drive above-average engagement for any subscriber who watches one from start to finish. Engagement is key in the company's bid to attract advertisers, because businesses want to showcase their products on the platforms where consumers are spending the most time.
This is shaping up to be Netflix's biggest year yet when it comes to live entertainment. The platform is now the home of World Wrestling Entertainment (WWE) under a 10-year deal with TKO Group. Netflix is streaming WWE Raw live every week worldwide, in addition to Smackdown and NXT live every week outside the U.S. Plus, the platform will also show live special events like WrestleMania and SummerSlam to international audiences (in the U.S., Comcast's Peacock will air WWE's premium events).
Netflix stock might be cheap based on its future potential
Netflix generated $19.83 in earnings per share (EPS) in 2024, which places its stock at a price-to-earnings (P/E) ratio of 49. That isn't exactly cheap when you consider the Nasdaq-100 -- which is home to most of the company's big-tech peers -- trades at a P/E ratio of just 29.
However, Netflix is growing quickly enough that its valuation doesn't look all that high on a forward basis. For instance, Wall Street's consensus estimate (as calculated by Yahoo! Finance) is that the company will generate $30.28 in EPS in 2026, placing its stock at a forward P/E ratio of just 32.
NFLX PE Ratio data by YCharts
That might be why Wall Street remains overwhelmingly bullish on Netflix stock. Of the 54 analysts tracked by The Wall Street Journal, 32 have assigned it their highest possible buy rating. Six others are in the overweight (bullish) camp, while 14 recommend holding. Although two analysts have assigned it an underweight (bearish) rating, none recommend selling.
Their average price target of $1,086 implies a potential upside of 11% over the next 12 to 18 months, but the Street-high target of $1,494 suggests the stock could soar by 53%.
Netflix estimates that it has only captured 6% of its $650 billion total addressable market across paid memberships, advertising, gaming, and more. Therefore, despite its dominance in the streaming industry, it still has an extremely long runway for growth. That means its stock could be a great long-term buy for investors, especially when it's trading at an 8% discount to the all-time high it touched last month.
