As shares in Netflix Inc. climbed to a record high on Wednesday after the company reported its best-ever quarterly subscriber gain, one expert says he isn’t convinced the streaming giant can live up to its lofty valuation in the coming years.
“When we look at the company, we think things couldn’t be going much better,” Matthew Dolgin, senior equity analyst at Morningstar, told BNN Bloomberg in a Wednesday interview.
“This past quarter, the subscriber additions were really phenomenal, it was a record quarter, and the year was a record. Our concern is that things can’t get much better.”
Netflix said on Tuesday it added 18.9 million new customers in its fourth fiscal quarter, more than double what Wall Street was expecting, bringing its total global subscriber base to more than 300 million.
Shares in the company were up by more than 10 per cent in midday trading in New York on Wednesday, hovering below US$970 per share.
Dolgin acknowledged that he underestimated how long Netflix’s current stock rally, which kicked off in 2022, would persist, but said he remains cautious on the company’s outlook going forward.
“When you look at the penetration in the U.S., which is the highest priced market and where the company gets most of its revenue, as well as the valuation and the fact that we think things need to decelerate from here, we just can’t get our hands around the valuation,” he said.
“From the business operations point of view and it being leaps and bounds ahead of competitors, there’s nothing not to like, but as far as the price you’re paying on the stock, it gives us concern.”
Tuesday’s earnings release from Netflix marks the last time the company will report quarterly subscriber figures, as management tries to avoid the major stock price swings typically associated with the number and get investors to look at other metrics like sales and profit.
The company said it saw revenue growth of 16 per cent to US$10.2 billion for the quarter, its biggest quarterly gain since 2021, Bloomberg News reported Wednesday. Netflix also said it expects faster-than-predicted sales growth this year.
Dolgin said that while he and his team at Morningstar also expect Netflix to continue reporting strong results throughout 2025, he believes “things have to decelerate” in the years ahead, when their current success is “going to be tough to replicate.”
“When you see growth coming down and when you start having fewer areas where you can get higher margins – this is a company that needs to continue investing in content every year, so there is some limit to how much is going to drop to that bottom line,” he explained.
“And when we look at all of that over the course of the next few years rather than just 2025, that’s where we have a tough time seeing this as a $1,000 stock.”
With files from Bloomberg News