Netflix Stock Valuation

Abstract

The COVID-19 pandemic wrought significant changes in people’s lifestyles, leading them to turn to entertainment options, with online streaming emerging as a popular choice during quarantine periods. In the initial half of 2020, Netflix experienced a surge, gaining over 26 million global subscribers (ACCA, 2020). This surge was mirrored in its stock price, skyrocketing from $287 per share in September 2019 to $690 in October 2021. Despite a subsequent decline to $482 as of January 2024, the stock still maintains nearly double its value from five years ago. As the pandemic’s influence wanes and more leisure options become available, questions arise about the justifiability of Netflix’s current stock valuation. This report employs two approaches to assess the fairness of Netflix’s stock: discounted cash flow valuation (DCF) and comparable companies analysis (CCA). The DCF method indicates a slightly lower intrinsic value than Netflix’s current stock price by half a dollar. The CCA model, utilizing data from Netflix and its six major competitors’ annual reports spanning 2017 to 2023, including the pre and post-pandemic periods, suggests that Netflix is significantly overvalued. Considering Netflix’s overall trend and underlying assumptions, the conclusion is drawn that Netflix’s stock price is overvalued.