In the dynamic and fiercely competitive business environment, conducting a thorough analysis of companies is crucial for investors and industry enthusiasts. In this article, we will perform an extensive industry comparison, evaluating Netflix (NASDAQ:NFLX) in relation to its major competitors in the Entertainment industry. By closely examining crucial financial metrics, market position, and growth prospects, we aim to offer valuable insights for investors and shed light on company’s performance within the industry.
Netflix Background
Netflix’s relatively simple business model involves only one business, its streaming service. It has the biggest television entertainment subscriber base in both the United States and the collective international market, with more than 300 million subscribers globally. Netflix has exposure to nearly the entire global population outside of China. The firm has traditionally avoided a regular slate of live programming or sports content, instead focusing on on-demand access to episodic television, movies, and documentaries. The firm introduced ad-supported subscription plans in 2022, giving the firm exposure to the advertising market in addition to the subscription fees that have historically accounted for nearly all its revenue.
| Company | P/E | P/B | P/S | ROE | EBITDA (in billions) | Gross Profit (in billions) | Revenue Growth |
|---|---|---|---|---|---|---|---|
| Netflix Inc | 37.73 | 14.76 | 9.08 | 10.01% | $7.37 | $5.35 | 17.16% |
| The Walt Disney Co | 16.49 | 1.84 | 2.17 | 1.2% | $3.85 | $8.45 | -0.49% |
| Spotify Technology SA | 68.50 | 12.13 | 5.71 | 12.48% | $0.86 | $1.35 | 7.12% |
| Warner Bros. Discovery Inc | 151.89 | 1.99 | 1.90 | -0.41% | $4.28 | $4.48 | -6.01% |
| Live Nation Entertainment Inc | 105.81 | 65.04 | 1.40 | 38.94% | $0.98 | $2.06 | 11.08% |
| Tencent Music Entertainment Group | 17.66 | 2.28 | 6.01 | 2.58% | $2.72 | $3.68 | 20.64% |
| TKO Group Holdings Inc | 79.73 | 4.31 | 21 | 1.01% | $0.31 | $0.68 | -27.31% |
| Warner Music Group Corp | 45.67 | 25.44 | 2.45 | 17.64% | $0.34 | $0.83 | 14.6% |
| Cinemark Holdings Inc | 20.99 | 4.88 | 1.06 | 6.32% | $0.12 | $0.55 | -6.98% |
| iQIYI Inc | 204.22 | 1.03 | 0.50 | -1.85% | $0.01 | $1.22 | -7.77% |
| Imax Corp | 48.54 | 5.30 | 5.03 | 6.17% | $0.05 | $0.07 | 16.62% |
| Average | 75.95 | 12.42 | 4.72 | 8.41% | $1.35 | $2.34 | 2.15% |
By closely studying Netflix, we can observe the following trends:
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The Price to Earnings ratio of 37.73 is 0.5x lower than the industry average, indicating potential undervaluation for the stock.
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It could be trading at a premium in relation to its book value, as indicated by its Price to Book ratio of 14.76 which exceeds the industry average by 1.19x.
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With a relatively high Price to Sales ratio of 9.08, which is 1.92x the industry average, the stock might be considered overvalued based on sales performance.
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With a Return on Equity (ROE) of 10.01% that is 1.6% above the industry average, it appears that the company exhibits efficient use of equity to generate profits.
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The Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $7.37 Billion is 5.46x above the industry average, highlighting stronger profitability and robust cash flow generation.
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Compared to its industry, the company has higher gross profit of $5.35 Billion, which indicates 2.29x above the industry average, indicating stronger profitability and higher earnings from its core operations.
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With a revenue growth of 17.16%, which surpasses the industry average of 2.15%, the company is demonstrating robust sales expansion and gaining market share.
Debt To Equity Ratio
The debt-to-equity (D/E) ratio is an important measure to assess the financial structure and risk profile of a company.
Considering the debt-to-equity ratio in industry comparisons allows for a concise evaluation of a company’s financial health and risk profile, aiding in informed decision-making.
When assessing Netflix against its top 4 peers using the Debt-to-Equity ratio, the following comparisons can be made:
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Netflix demonstrates a stronger financial position compared to its top 4 peers in the sector.
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With a lower debt-to-equity ratio of 0.56, the company relies less on debt financing and maintains a healthier balance between debt and equity, which can be viewed positively by investors.
Key Takeaways
For Netflix, the low P/E ratio suggests potential undervaluation compared to peers in the Entertainment industry. A high P/B ratio indicates the market values Netflix’s assets at a premium. The high P/S ratio implies strong revenue generation relative to market capitalization. Netflix’s high ROE, EBITDA, gross profit, and revenue growth reflect efficient operations and robust financial performance within the sector.
This article was generated by Benzinga’s automated content engine and reviewed by an editor.
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