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Stock Strategist

Netflix Valuation Needs to Chill

Even after raising our fair value estimate, we think the market is too optimistic.

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We took a fresh look at  Netflix (NFLX) in light of the company's recent quarterly results and revised guidance. As a result, we have raised our fair value estimate to $120 per share from $90 to account for slightly faster margin improvement in the U.S. and international segments, faster growth in international net subscriber additions, and slightly faster growth in average monthly revenue per paying member in the United States. Even with the fair value estimate increase, however, the shares still appear fundamentally overvalued to us. Our 1-star rating rests on five key points about narrow-moat Netflix and the competitive landscape in which it operates.

First, we believe that the level of competition in the U.S. and internationally is increasing and will continue to do so in the near future.  Walt Disney (DIS) will launch its own branded subscription video on demand service in the second half of 2019, and other companies such as  Walmart (WMT) are reportedly planning to enter the market as well.

Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.