Michael Nathanson: Netflix stock is ahead of itself; Meta and Google look attractive here
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Despite the release of well-received financial figures from the video streaming giant, Michael Nathanson argued Friday that Netflix (NASDAQ:NFLX) stock is overvalued and he sees "attractive" opportunities elsewhere, including Meta (NASDAQ:META) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).
In an interview with CNBC, the SVB MoffettNathanson founding partner and senior research analyst said that "the narrative is getting much better" for the streaming sector in general, as companies have become "more rational about spending." However, he added that investors are "hiding in" Netflix, even though there are more enticing investments among some of its tech rivals.
"I think the stock is ahead of itself," Nathanson said of NFLX, noting that the firm's outlook indicated that its recent quarterly results were a "pull forward" of demand rather than sustained signs of growth. "I just think it's run too fast, too far and we think there are better opportunities other places."
Specifically, Nathanson pointed to Meta (META) and Alphabet (GOOG) (GOOGL), citing "really attractive entry points here."
"I know people are worried about the ad numbers, but the stocks have fallen so much and I think people have taken the problems in 2022 and thought they were structural and they were cyclical to me," he said.
On NFLX, Nathanson acknowledged that the streaming service's 2023 outlook looks promising in terms of cash flow and operating margin and he predicted that the next six months will show better "risk-reward."
Netflix (NFLX) rose more than 6% in Friday's intraday trading following the release of its Q4 earnings report. This included guidance for 2023 revenue to accelerate, operating margin to come in between 21% to 22% and free cash flow to be ~$3B.
The streaming giant said it added 7.7M subscribers in Q4, which was well above company's expectations of 4.5M and consensus of 4.1M. That brought its total to 230.8M subscribers worldwide.
Looking at the past 12 months, NFLX has plunged about 35%, while GOOGL has declined 28% and META has retreated 57%. In Friday's intraday action, META was up 1.6% and GOOGL advanced 4.8% amid news the Google parent was cutting 12,000 jobs.
Looking at how some of NFLX's peers reacted in intraday action: Walt Disney (DIS) +1.4%, Roku (ROKU) +3.4%, Warner Bros Discovery (WBD) +1.7%, Paramount Global (PARA) +1.2%, fuboTV (FUBO) +4.6%.
For more on Netflix valuation, see why Seeking Alpha contributor Ahan Vashi says that "At ~50x forward P/FCF and 2023 revenue growth of ~10-15%, Netflix is grossly overvalued."