Impressively, this return stands even after a near-50% crash in the past 13 months. The last time Netflix had this sort of epic meltdown was between November 2021 and April 2022, when the peak-to-trough decline was 72%.

Yet anyone who invested at those lows has since made blockbuster returns, even after the recent collapse. So should I add this out-of-favour S&P 500 stock to my ISA?

The growth story’s lost fizz

As the undisputed titan of global streaming, I’m sure Netflix needs no backstory. Even your elderly relatives are likely familiar with the brand nowadays.

But is that part of the problem? I mean, the company’s stopped reporting membership growth as a key metric because it’s less flattering than it used to be.

After its second quarter report last week, Netflix stock dropped 7.3%. While earnings per share of $0.80 beat estimates (just), on revenue of $12.6bn (up 13%), the streamer trimmed the top end of its 2026 revenue guidance by $300m.

It now expects between $51bn and $51.4bn, which would represent a solid top-line increase of about 13.5%. Still, the growth story arguably lacks a bit of excitement nowadays, causing some investors to tune out.

Are attention spans shrinking?

Another thing that irked Wall Street was that management said it will publish less data on customer engagement, starting in 2027. Some have speculated that this might be because those metrics are also becoming less flattering.

According to Bloomberg data, Netflix is suffering from a season-two curse (or ‘sophomore slump’). Basically, viewing figures for the second season (S2) of many popular shows are falling off a cliff (some losing as much as 70% of their audience).

• Beef (S2): -70%.
• Avatar: The Last Airbender (S2): -59%.
• The Four Seasons (S2): -63%.
• The Night Agent (S2): -50%.

Is Netflix losing its touch? Or are people simply losing interest due to multi-year gaps between seasons?

Viewer fatigue could also be a problem, with Apple, Amazon, Disney, HBO and others all releasing similar content. Speaking personally, I recently cancelled my Netflix subscription because I hadn’t watched anything for weeks.

Now that could be a seasonal thing, with the World Cup having aired for weeks and warmer weather continuing. Perhaps I’ll be back binge-watching on Netflix when the dark nights set back in. But it does give me pause for thought.

More fundamentally, I worry that people’s attention spans are shrinking from daily exposure to short-form video on social media. It seems Netflix might be worrying too, as they’ve started experimenting with shorter content.

Could TV disruptor-in-chief Netflix be in the early days of being disrupted itself?

My move

I see no evidence of this yet in the figures. Netflix’s fundamentals remain rock-solid, and it’s still tracking towards its 2030 target of almost $80bn in revenue, supported by substantial digital advertisement growth.

Moreover, the valuation looks more attractive than before (perhaps ever). For 2027, the forward-looking earnings multiple is just 18, which is a massive historical discount.

As tempting as this is, I need more convincing about Netflix’s ability to deliver its next chapter of growth. I’m not ready to invest yet.

Should you invest £5,000 in Netflix right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Netflix made the list?

Ben McPoland has no position in any of the companies mentioned.

The post Down 47%, should I buy Netflix for my Stocks and Shares ISA? appeared first on The Twelfth Magpie.

But could this be a classic ‘value trap’? Let’s take a closer look.

Q2 earnings were solid

Netflix posted its earnings for the second quarter of 2026 last night and they were relatively solid. Revenue was up 13% year on year to $12.6bn while diluted earnings per share came in at $0.80 versus $0.72 a year earlier.

The stock fell after earnings though – as I write this on Friday (17 July) it’s down about 10%. So, what’s going on?

Why is the share price still falling?

Well, there were a few things in the results that investors didn’t like. One was Q3 guidance – this quarter, top-line growth is expected to fall to 12%.

Another was the fact that the company said that it will publish less data on customer engagement going forward. There were already some concerns over engagement and the fact that viewers seem to be less engaged with shows after the first season so this move hasn’t helped sentiment towards the stock.

Other issues impacting investor sentiment

Looking beyond the Q2 report, there are some other issues spooking investors at the moment. One is a lack of blockbuster shows.

Right now, there’s nothing that’s really exciting on its platform. This is presenting opportunities for competitors like Apple TV and Amazon Prime.

Another concern is competition from YouTube and short-form video. Increasingly, younger viewers are spending more time watching short-form videos.

So, there are some questions around Netflix’s business model. We can’t just assume that the majority of people are going to be happy to watch regular TV shows on the platform forever – viewing habits are changing.

Will I buy Netflix?

Putting this all together, it does look a bit like a value trap at the moment, if I’m honest. While there’s still a lot to like about the company, including a huge customer base, recurring revenues, and a high level of profitability, there’s no positive momentum.

It’s worth noting that today, at least eight brokerage firms have cut their price targets for the stock. That’s a classic sign of a value trap.

Of course, after a 50% share price fall, there is always the chance of a rebound at some point. At some stage, we could see value hunters step in and buy, supporting the stock.

However, with the price-to-earnings (P/E) ratio still near 20, I do think there’s potential for further share price weakness in the near term. So, I’m going to hold off on buying for now – I want to see a little more positive momentum both within the business and in the share price.

Should you invest £5,000 in Netflix right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Netflix made the list?

Edward Sheldon owns shares in Apple and Amazon.

The post Should I buy Netflix shares for my Stocks and Shares ISA after a 50% fall? appeared first on The Twelfth Magpie.

That’s a decline of around 43%. But by almost every operating metric, the underlying business is doing pretty well.

What’s been going wrong?

The sell-off has several ingredients. One is the firm’s Q2 earnings report – specifically, the forward guidance.

Netflix guided for $12.57bn in revenue, which was below the anticipated $12.63bn. And co-founder Reed Hastings announced his intention to stand down in June. 

Neither development’s trivial, but neither’s catastrophic. The revenue miss is small and Hastings is leaving to pursue philanthropy – not because the business is broken.

Analysts at Bank of America downgraded the stock to Hold earlier this month. Jefferies also cut its price target to $110 from $128, adding to the negative sentiment.  As a result, the stock’s been trading lower.

But it was expensive before, so has it reached bargain territory?

Valuation reset

Here’s what diligent investors should actually be paying attention to. Netflix’s trailing price-to-earnings (P/E) ratio’s around 23. The 10-year average is closer to 41.

Source: Fiscal.ai

In 2022 – when markets wrote the stock off as subscriber numbers faltered – the multiple only reached 15. It’s not quite at that level, but 23 is nearer 15 than 41.

The outlook for growth’s also pretty positive. Analysts at Morgan Stanley expect earnings and free cash flows to grow at around 20% a year. 

That puts the price/earnings-to-growth PEG ratio at close to 1, which isn’t particularly high for any business. And it’s definitely not high in the case of Netflix.

The company still has some unique strengths that identify it as a high-quality operation. That’s why I think the stock’s worth checking out at today’s prices.

Advertising

The big challenge for Netflix is competition. It isn’t just up against cable subscriptions these days – it has the likes of Amazon and Apple for company. These operations obviously have deep pockets and huge capacity to invest. And that’s a real danger for a firm that isn’t backed by a tech giant.

Importantly, Netflix’s advertising business is arriving faster than investors seem to think. It now reaches 250m monthly viewers and advertiser numbers are up 70% in a year. Management expects advertising revenue to reach $3bn in 2026. And this is expected to push free cash flows to $12.5bn.

It’s a tough industry. But Netflix is finding a way to support $30bn in share buybacks and I think that’s clearly a sign of long-term strength.

Worth considering

Netflix isn’t a washed-out stock. The possibility of more selling after the firm’s Q2 results next month is real, as is the governance transition.

At today’s price however, investors are paying a mature-media multiple for a business that’s still generating 16% revenue growth. That seems like a deal worth considering.

Should you invest £5,000 in Netflix right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Netflix made the list?

Stephen Wright owns shares in Amazon, Apple, and Netflix.

The post After a brutal 43% slide, is Netflix 1 of the best shares to buy right now? appeared first on The Twelfth Magpie.

I don’t see myself joining the ranks of the retail investors looking to get in on the action. But I’m alert to potential opportunities elsewhere.

Here comes SpaceX

SpaceX shares are expected to trade on the stock market on 12 June, and it’s looking to achieve a valuation of $1.85trn. For context, that would put it somewhere between Tesla ($1.6trn) and Broadcom ($2trn).

Importantly, it’s also being fast-tracked into the S&P 500. This means that funds that look to track the index are going to have to buy the stock. And they’ll have to sell other things to make way.

By itself, that isn’t unusual – companies come and go from the index all the time. But they don’t usually account for 3% of the entire index. That kind of new entrant means an unusual level of buying and selling. And it’s the selling that I think might create interesting opportunities.

Where are the opportunities?

At times like this, it’s worth thinking about what might be attractive if share prices fall across the board. And one name on my radar is Netflix (NASDAQ:NFLX).

It’s been an interesting few months for the stock. The share price jumped 26.6% when the firm announced its takeover of Warner Bros Discovery was off. 

I can understand why. It looked to me as though Netflix was preparing to pay a lot for assets that other firms have struggled to unlock value from.

As it happens, Paramount Skydance is going to buy the business instead. And I can’t help but see this as a win-win for Netflix. 

Not only is the firm not going to do what I thought was a questionable deal, one of its rivals is going to instead. I think that strengthens the company’s position.

Unique strengths

Disney probably has the best content library in the industry. But Netflix has a better streaming product and I think that’s much more important. 

For Disney, catching up to Netflix’s subscriber base is going to take big investments. That will cut into earnings and cash flows in the short term.

Will the company’s shareholders tolerate this? I’m not sure they will – it’ll make paying dividends hard to justify for some time.

By contrast, the big challenge for Netflix is that it has to keep investing in content. And the firm has been open about the risks involved.

New franchises and programmes are always uncertain. But I think the company’s investors are well used to taking the long-term view. 

One to watch

When SpaceX joins the S&P 500, I expect a lot of stocks to become cheaper without the underlying business changing. So I’ll be looking for opportunities.

Netflix shares jumped in March when the firm announced its takeover deal was off. But the stock has since given back about half of that gain.

As a result, I think it’s in a position where any further drop in the share price could put it in very interesting territory for me. And that could happen in June.

Stephen Wright owns shares in Disney and Netflix

The post Here’s why June could be a great month to buy shares appeared first on The Twelfth Magpie.

It’s 30.68% off its all-time highs, but it still doesn’t exactly scream value. Is it cheap enough for me to buy?

Consumer sentiment 

According to the latest data from the University of Michigan, consumer confidence is at a five-year low. And that makes sense.

Source: Trading Economics

Mortgage rates are high, fuel prices are up, and artificial intelligence (AI) is threatening job security. On the face of it, that should be a risk for Netflix. 

With budgets being under pressure, people might think about cancelling subscriptions. But I think the opposite’s more likely. While I expect households to cut spending, I don’t see Netflix as an obvious casualty.

It offers a lot of value at a modest price. The firm’s most expensive tier is $26.99 a month. Compared to going out pretty much anywhere, that’s not expensive.

My suspicion is that those looking to pull in their spending might see it that way. Especially with cheaper tiers available.

Assets

Another risk with Netflix is its ongoing costs. The firm has to keep producing content and this involves guaranteed costs with uncertain returns.

The company tried to buy Warner Bros Discovery (WBD), but that didn’t work out. I think though, that might be a good thing. WBD has top-quality franchisees. That however, is no guarantee of success, as various owners of those assets have found. 

Netflix’s rival Paramount Skydance is set to pay $110.9bn for WBD. But it isn’t obvious to me that the firm can afford this. It’s a huge risk for Paramount. And I think Netflix might have been wise to let them take it – and claim a $2.8bn termination fee.

The situation reminds me of Teladoc Health buying Livongo in 2020. But if I’m right, then Netflix is the real winner here. 

Outlook

Netflix’s latest guidance fell short of Wall Street’s expectations. Revenues and margins for Q2 were below analyst forecasts. That’s a reflection of the two risks facing the company. Importantly however, engagement remains high. 

It’s the most popular streaming service behind YouTube by some way. And this is what I think ultimately matters.

Source: Fiscal.ai

Officially, Netflix shares are trading at a price-to-earnings (P/E) ratio of 30. That’s above the S&P 500 average, but is it cheap enough? It’s not where the stock was when the firm reported declining users in 2022. But chances to buy it at this level have been rare.

Adjusting for that $2.8bn windfall though, the P/E ratio is closer to 37. And that might be a touch high for a huge opportunity.

Is this my chance to buy?

I think Netflix is doing well and I see the firm as the real winner from the Warner Brothers Discovery deal. So should I buy the stock?

I have two thoughts. One is that I might not get a better opportunity – it’s trading at some unusually cheap multiples at the moment. The other however, is that I think I can see more compelling opportunities right now. So I’m watching closely, but I’m buying elsewhere.

The post 30.68% off its highs — is now my chance to buy Netflix in my Stocks and Shares ISA appeared first on The Twelfth Magpie.

So which stocks are currently unloved? Well, worried about AI disruption, the market has rotated into value, leaving a lot of high-quality growth shares out of vogue.

As such, here are two stock dip-buying opportunities worth checking out.

Better insulated from AI risk

Let’s start with Netflix (NASDAQ:NFLX). The stock had sold off heavily since last summer, as investors worried about the streamer’s attempt to buy Warner Bros. Discovery for a colossal sum.

The company has now abandoned this debt-fuelled bid, sending its share price up more than 20% in recent days. However, at $95 per share, this still leaves Netflix almost 30% off its June high of $134.

As mentioned, AI is weighing on growth stocks. Some investors fear the technology makes content creation far easier, potentially enabling rivals to emerge with endless free AI content.

My view is this risk is overblown. Instead, I think people are quickly growing tired of ‘AI slop’, and that the high-quality content that Netflix creates with those quaint, flesh-and-blood human actors isn’t going out of fashion.

I reckon Netflix subscriptions will prove very resilient — and trend upwards over time, boosting profits.

Moreover, I think AI should benefit the firm rather than hurt it. For example, it should lower content creation costs, not necessarily by replacing human actors and writers, but by cutting production waste and improving dubbing and localisation technology.

AI should also improve high-margin advertising solutions and content discovery. Ad revenue is expected to roughly double in 2026, while Netflix expands into podcasts, cloud-first gaming, and live sports.

JPMorgan analysts agree, saying they “believe storytelling and talent will remain critical moats, ultimately better insulating Netflix from AI disruption risk compared to transactional business models“.

Netflix stock isn’t cheap today (it very rarely is). But I see no evidence that its ambition to become a $1trn company over the medium term — a more than doubling from today — is about to be derailed by AI.

Taking market share

Next, we have On Holding (NYSE:ONON), the Swiss premium sportswear brand. As I write, the stock is down 12% today (3 March).

This despite the company growing sales 30% to 3bn Swiss francs (roughly $3.8bn) last year. On a constant currency basis, revenue grew 35.6%, which is exceptional given the tough consumer backdrop.

So, what’s the problem here? The 2026 guidance for 23% sales growth, representing a deceleration from 2025. This figure is slightly below Wall Street’s expectations — shock, horror! — and currency changes present risks.

However, the strong ongoing growth indicates that On continues to take market share from legacy brands Nike and Adidas, due to its focus on innovation and high-performance footwear. Sales across Asia Pacific skyrocketed 96.4% last year.

Meanwhile, the gross profit margin increased to 62.8% from 60.6%, boosted by its premium positioning. And On expects this to rise to at least 63% this year.

The company is opening robotic factories to make its cutting-edge LightSpray running shoes, which over time should help insulate its profits from tariff uncertainty and supply chain disruptions.

The post 2 growth stocks to consider buying for an ISA in March appeared first on The Twelfth Magpie.

The stock is down 40% from its recent highs, despite the company making more money than ever before. But there are a couple of things that need a closer look before making a decision.

Earnings

Netflix’s revenues were up 17.6% compared to the same quarter in the year before. And – importantly – this was partly the result of a strong performance in its advertising division.

As a result, profit margins widened and earnings per share grew 31%. The stock trades at a price-to-earnings (P/E) ratio of 33, which reflects high expectations, but this is still a strong result.

The firm’s forecast, however, is for revenue growth of between 12% and 14% for 2026, which is lower than what it just achieved. And this is a key reason why the stock has fallen after earnings.

High multiples typically mean investors are expecting sales to keep growing quickly. So the rate of increase slowing can cause the share price to fall as the multiple contracts.

Acquisition

At the moment, one of the key points of uncertainty for potential investors is Netflix’s attempt to buy Warner Brothers Discovery. Things haven’t been going to plan recently.

Back in December, Netflix had a deal to buy the firm’s studio and streaming assets. But this has developed into a bidding war with Paramount Global, which wants to buy the entire company.

As a result, the price has increased significantly. And instead of using its stock as currency in the transaction, Netflix has had to take a loan and pause its share buyback programme to offer cash. 

That greatly increases the risk with the acquisition. Warner Brothers Discovery has some top assets in terms of intellectual property, but there is a real danger of paying too much for them.

Opportunity?

Over the last 12 months, my view on Netflix has shifted significantly. I had been concerned that it might struggle to retain subscribers when household budgets come under pressure.

In fact, the opposite has been true. People have responded to cost of living increases by sticking to the streaming service as a relatively cheap source of entertainment compared to going out.

I stayed away from buying the stock, though, because it climbed sharply in April and I thought the price was too high. But it’s now trading roughly in line with its average valuation multiples.

Given this, the stock has made it back onto my list that I’m keeping an eye on. I don’t want to see the company overpay for an acquisition, but I do think it’s worth considering at today’s prices.

A quality company

The last time Netflix fell out of favour with investors was when subscriber growth faltered in 2022. But anyone who bought the stock then is now up 350% on their investment.

Uncertainty over the potential acquisition is weighing on the stock, but I think the business is still very strong. As a result, I’ll be taking a closer look when I’m next in a position to invest.

The post Is the falling Netflix share price the chance I’ve been waiting for? appeared first on The Twelfth Magpie.

In hindsight, I should have scooped up shares in 2022 when the share price crashed 70% in just four months. But I didn’t and it’s rocketed 360% since then.

As I write today (21 January) though, the Netflix share price is down 4%. This means the streaming giant has now lost nearly 37% of its value since June.

So, is this my chance to finally add the stock to my ISA?

Acquisition drama

With 325m paying subscribers worldwide, Netflix likely needs no introduction. You’d struggle to find many UK households that had not seen at least one of its hit shows — Squid Games, Stranger Things, Wednesday, Black Mirror, Adolescence, etc — in the past 12 months.

The stock’s decline largely relates to the ongoing Warner Brothers Discovery (WBD) acquisition saga, which took a new twist recently. In a bid to fend off a rival bid from Paramount Skydance, Netflix has switched its $83bn offer to an all-cash deal.

This has caused a lot of investor uncertainty — not just about whether any deal would get regulatory clearance, but whether it’s worth doing at all. After all, Netflix hasn’t needed to do many acquisitions in its history, and this is by far the largest.

The company wants WBD’s content library and film studios, including the HBO Max streaming service. Management says “Warner Bros.’ library, development and IP will allow us to provide an even broader and higher-quality selection of content for members“.

Meanwhile, the addition of HBO Max will allow the firm to offer personalised subscription bundles. However, the transaction would mean taking on significant debt, which obviously adds risk for shareholders.

Wall Street downgrades

Near-40% drops in Netflix stock are pretty rare, and I suspect I might come to regret not buying this dip.

Then again, this acquisition drama could drag on for a while, especially from a regulatory standpoint. Any bidding war could put even more downwards pressure on the share price.

I note the stock has been downgraded by a lot of Wall Street analysts today. Part of this probably had something to do with the streaming giant’s 2025 results, which were published yesterday.

Because despite solid numbers for last year, Netflix’s guidance for 2026 seemed to disappoint some investors. It’s forecasting revenue of $50.7bn to $51.7bn, representing 12%-14% growth. Last year it was 17% growth on a constant-currency basis.

Meanwhile, it expects an operating margin of 31.5%, which was lower than Wall Street was expecting (32.6%).

My move

The WBD acquisition is creating near-term uncertainty. But now trading at around 23 times forward earnings (for 2027), the stock looks cheaper than it has for some time.

Longer term, I remain bullish on Netflix. Last year, its ad revenue surged more than 150% to over $1.5bn. As the streamer moves deeper into live broadcasting, I expect this figure to increase dramatically over the next decade.

Meanwhile, the firm’s building out its cloud-based gaming options and expanding into video podcasts. Further out, I expect AI could materially cut content creation costs.

After weighing things up, I’ve decided to open a starter position in the coming days.

The post Down 37%! Is now the time to buy Netflix stock for my ISA? appeared first on The Twelfth Magpie.

However, the most disappointing by far has been Duolingo (NASDAQ:DUOL). Since I invested, my total paper loss is now around 50%. Ouch!

Sticky platforms

Whenever a stock collapses like this, it’s important to revisit the original investment thesis. If this is broken, it’s better to face up to reality because the stock may keep falling and never recover.

When I first explored Duolingo, I was sceptical the language learning app had any durable competitive advantage (moat). Yet it quickly reminded me of Netflix (NASDAQ:NFLX). Both are scalable, global consumer platforms monetised by subscriptions (mainly) and adverts.

As with Duolingo today, it wasn’t obvious back in 2009 that Netflix had a durable moat. Its streaming model could easily be replicated, and indeed has been since by the likes of Amazon, Apple, Disney, Paramount, and ITV. Ever more competition is a risk to growth.

Yet Netflix has endured because of its brand power, popular shows, and sophisticated AI/algorithms used to recommend content.

Likewise, Duolingo has a strong brand, highly engaged user base, and strong AI credentials. Its Birdbrain AI system processes over 1.25bn daily exercises, helping feed machine-learning models that personalise users’ learning experiences.

Crucially, both also have distinct corporate cultures focused on long-term value creation over short-term profits.

Our long-term goals remain unchanged: To be a great Internet movie service…and to grow subscribers and earnings every year while
continuing to invest in streaming.

Netflix CEO Reed Hastings, 2009 annual report.

One of our five operating principles is ‘take the long view’. The opportunity ahead of us is to teach billions of people, and while we’ve made incredible progress, we know we’re early in our journey.

Duolingo CEO Luis von Ahn, 2025.

Broken thesis?

Looking at Duolingo’s Q3 results, I see no evidence the growth story’s unravelling. Daily active users hit a record 50.5m while monthly users topped 135m.

Revenue jumped 41% year on year to $271.7m and adjusted EBITDA surged 68% to $80m.

Looking ahead though, management will shift focus from increasing paid subscribers (monetisation) to improving teaching quality to drive long-term user growth. And this risks some margin pressure and, possibly, lower-than-expected bookings.

Being realistic

Now to be clear, I’m not saying Duolingo will become a global juggernaut worth $480bn like Netflix. The streaming leader’s shares are up roughly 14,000% since 2009, and such returns are exceptionally rare. Hence why I said it only reminds me of a young Netflix.

Also, I don’t want to downplay AI threats or live translation from Google and Meta glasses. Although it’s worth remembering that people use Duolingo regularly to learn a second language, not translate conversations.

Meanwhile, ChatGPT has no structured curriculum and/or gamified features like streaks to keep users engaged.

Of Duolingo’s 135m users, only 9% (11.5m) today are paid subscribers. Considering there are 1.5bn people learning a foreign language, the market opportunity remains massive, especially in Asia. And this excludes maths, music, chess and other future subjects.

With the stock trading at a far cheaper valuation than six months ago, I think it’s worth assessing. I think the crashing share price doesn’t reflect the actual strength of the underlying business.

The post This growth stock down 50% reminds me of Netflix in 2009 appeared first on The Twelfth Magpie.

Why did ITV fall?

The share price fall puts ITV at 69p. Given that this is towards a 52-week low, it’s perhaps a little surprising that Liberty chose now to slash its 10% stake. After all, it had held it for a decade.

As Dan Coatsworth, head of markets at AJ Bell, points out: “Investors might be concerned as to why Liberty Global has chosen to sell half of its position at time when the shares were trading close to a six-month low. Many large investors wait for a share price to be high before selling down.”

To be fair, ITV notes that Liberty had a “previously stated intention to divest of non-core assets“. So this doesn’t look like too much of a concern.

Acquisition target

There has been speculation for years that ITV could be acquired. A cheap valuation and the attractive Studios arm — which makes content for other broadcasters and streamers — give credence to the rumours.

Perhaps Liberty’s selling down will help pave the way for a sale or breakup of ITV. This might unlock some sort of shareholder value, especially as the media group is trading at just eight times forecast earnings.

Then again, would someone want the whole lot or just the Studios bit? I can’t imagine Netflix (NASDAQ:NFLX) would be interested in linear TV and the ITXVX streaming platform. Presumably, it would just want Studios and the back catalogue of content.

But who would want to invest in the remaining part, if it remained public? Without the Studios unit, I personally wouldn’t have any interest in ITV.

Losing relevance

Netflix is worth dwelling on because it’s arguably ITV’s biggest rival now that the FTSE 250 firm has fully embraced streaming.

Back in 2015, Netflix reported revenue of $6.8bn, with an operating profit of $306m. Meanwhile, ITV’s total external revenue was £2.9bn, with adjusted EBITA (earnings before interest, taxes, and amortisation) of £865m. ITV was therefore far more profitable.

By last year, though, this had totally flipped. Netflix’s operating profit was approximately $10.4bn on revenue of $39bn. ITV’s external revenue was £3.5bn, but adjusted EBITA was down to just £542m. 

These figures explain both ITV’s 75% share price crash and Netflix’s 1,000% rise. Essentially, the streaming giant has taken viewers from the former, and I don’t expect this to reverse meaningfully.

Nuance

Having said that, the reality is admittedly more nuanced because ITV actually distributes content to Netflix and other global streamers. For example, Studios made The Devil’s Hour for Amazon Prime Video and Run Away for Netflix.

The growing Studios arm is why I think ITV stock is probably undervalued. And right now, investors are being offered a well-covered 7.3% dividend yield to sit tight and wait for that value to potentially be realised. So income investors might want to consider the stock.

For me, though, I prefer Netflix stock. Granted, it trades at a far higher 34 times next year’s earnings, which adds risk if profits come in light. But the streaming leader’s growth potential — particularly from digital advertising — seems far more attractive.

The post How on earth has the ITV share price fallen by 75%? appeared first on The Twelfth Magpie.