There's been a lot going on with Netflix (NFLX 0.04%) in recent months. Late last year, the company announced a 10-for-1 stock split, the first in nearly a decade. Then, after making a bid to purchase the streaming and studio assets of Warner Bros. Discovery, Netflix took the high road and bowed out of what could have been a costly bidding war with Paramount Skydance. Finally, co-founder and executive chair Reed Hasting announced he would depart the company after more than a quarter-century at the helm.
At roughly $92, the streaming pioneer's stock price remains more than 30% off its peak from last year. Yet Netflix's operating and financial results remain robust, and management just made a bold statement that signals that the stock price is compelling.
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Fire sale
In a regulatory filing last week, Netflix announced, without much fanfare, that its board of directors had approved a $25 billion share buyback. For context, that's more than the $20 billion the company plans to spend on content for all of 2026.
The new $25 billion buyback is in addition to the $6.8 billion remaining under its existing repurchase agreement, bringing the company's total to roughly $31.8 billion for share repurchases.
In a recent regulatory filing, Netflix disclosed that it had approximately 4.2 billion shares outstanding. A back-of-the-envelope calculation suggests the company could retire more than 8% of its outstanding stock -- representing a notable reduction in its share count. Current stockholders would thereby be entitled to a greater share of the company's earnings.
Management obviously believes Netflix stock is inexpensive, and history backs that up. At less than 30 times earnings, shares haven't been this cheap in more than three years.
NASDAQ: NFLX
Key Data Points
Show me the money
It's worth putting this move in the context of Netflix's recent results and why investors panned the results. In the first quarter, Netflix delivered revenue of $12.25 billion, up 16%, driving earnings per share (EPS) of $1.23, which jumped 86%. This was well ahead of management's forecast of $12.16 billion in revenue and $0.76 in EPS. Higher-than-forecast membership growth, price increases, and growing ad revenue contributed to the higher sales.
Investors seemed concerned about the company's second-quarter outlook, which called for revenue growth of 14% to $12.6 billion and EPS of $0.78, up just 8%. Management explained that amortization would be front-loaded in Q2 and decelerate throughout the remainder of the year, so the weak bottom line is just a matter of timing.
Netflix continues to take steps to drive future growth. The recently instituted U.S. price increase didn't drop until late March, meaning future quarters will still benefit as the price hikes -- which impact all tiers -- are rolled out. Moreover, management says the company is on track to double its advertising revenue to $3 billion from $1.5 billion last year.
These are hardly the results of a business in peril. On the contrary, this shows a company that's generating solid revenue and profit growth.
Given the totality of the situation, this represents a compelling opportunity for a stock that has delivered returns of 922% over the past decade (as of this writing), nearly four times the 243% gains of the S&P 500.
Lest there be any question, I believe Netflix stock is a buy.
