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After Netflix (NFLX) announced a new $25 billion share-buyback initiative, NFLX stock presents several incentive3s, including buybacks, continued likely growth of the firm's ad revenue, and price hikes. Further, in the wake of the shares' recent pullback, their valuation has become quite attractive. Also, at a time when consumers are facing a myriad of strong, negative pressures, NFLX is a good defensive stock.
In light of these points, NFLX stock is quite attractive for growth-at-a-reasonable price (GARP) and value investors.
About Netflix
Netflix dominates the online-streaming market and has become one of the world's most popular content providers overall. In the first quarter, its sales climbed 16% versus the same period a year earlier to $12.25 billion, while its operating income surged 18% year-over-year (YOY) to $3.96 billion.
NFLX stock has a forward price-earnings ratio of 26.33 times.
The Buybacks and Other Positive Needle Movers
On April 23, Netflix's board authorized an additional $25 billion of share repurchases. The initiative will certainly help boost the shares going forward.
Meanwhile, the company predicts that its revenue from ads will soar 100% to $3 billion in 2026. With the firm intending to launch new products that will help advertisers measure the effectiveness of their marketing on NFLX, the company's ad sales may exceed expectations as marketers get a better idea of the extent to which their ads are translating to meaningful increases in the number of consumers in their sales funnels. Netflix may be entering a positive cycle, in which its ad business keeps growing, enabling it to invest more in new ad technologies, producing additional ad revenue and starting the cycle again.
In March, Netflix raised the prices of all of its subscriptions. These increases are likely to meaningfully improve the company's top and bottom lines.
Finally, using its increased revenue from ads and price hikes, along with the $2.8 billion breakup fee that it received from Paramount Skydance (PSKY), NFLX can purchase the rights to increased live content. And by doing so, Netflix will persuade additional subscribers to give up their cable subscriptions, as live TV is cable's one remaining advantage over Netflix. Consumers who are not saddled by cable bills will be able and likely to pay for Netflix, allowing the company to raise prices again in the future.
Netflix's Defensiveness and Its Attractive Valuation
Consumers are being squeezed by tariffs, high oil prices, and continuing inflation, which are limiting their purchasing power. Since NFLX is considered both affordable and essential by many if not most households, it's a good pick in the current environment. That's despite the possibility that growth of its ad revenue could be slower than expected due to adverse macro trends.
After the recent pullback of NFLX stock, the shares are trading at a forward price-earnings ratio of 26.3 times. Because analysts on average expect its earnings per share to climb 39.5% and 9% in 2026 and 2027 respectively, the stock's valuation is quite low.
