Netflix (NFLX +2.38%) stock jumped 13% in August, according to data provided by S&P Global Market Intelligence. After sliding for most of the year and hitting a 52-week low after its earnings report in July, it looks like investors thought it was oversold and ripe for buying.
Is streaming slowing down?
Netflix has dealt with many changes in its industry over its many years of operation, and it has always succeeded in the face of naysayers. Its game-changing pivot to online streaming from DVD rentals jump-started the entire industry, and it has gone through many transformations, including creating its own content, moving into gaming, and launching an ad-supported tier. Analysts have predicted its demise many times in the past, so keep that in mind when considering that its stock has been slumping.
Image source: Netflix.
This year, it lost out on two potential acquisitions, Roku and Warner Bros. Discovery, which led to some loss of confidence. In July, its earnings results failed to impress. Revenue increased 13% year over year to $13.6 billion, but that was a deceleration, and management is guiding for further deceleration in the third quarter, or an 11% increase.
Viewing hours per member have been declining, although management claims that engagement quality is improving. It's bringing in more members for live events, for example, which are monetized at a higher rate with ads and lead to more subscriptions.
NASDAQ: NFLX
Key Data Points
The engagement piece has been a big issue for investors, especially at a time when there's fierce competition. Management is said to be considering bundling with other streaming partners, with Netflix as a platform for its competitors.
Netflix is priced to buy
After the second-quarter report, Netflix stock dropped to its lowest P/E ratio in three years.
NFLX PE Ratio data by YCharts
That was a catalyst for buyers who see a compelling opportunity. Management says that it has 45% of global addressable household penetration, still giving it room to run, and only 7% of the addressable revenue market. It has only 5% of the global TV view share, and according to Nielsen, streaming still accounts for less than half of total viewing. Netflix is confident that it still has a massive growth runway.
It has demonstrated the ability to envision where its industry is going and to make the leap there multiple times, and it's likely to continue to do that well into the future.
