NFLX Near 52-Week Low Following SKYD Merger, Earnings & Live Offer Opportunity

[music] All right, welcome back to the tech corner. I'm George Tillis, senior markets contributor with the Schwab network. Today we're going to be revisiting Netflix Incorporated. Now, as you may know, Netflix is one of the largest global entertainment companies distributing television series, movies, documentaries, games, and increasingly live programming to over 190 countries worldwide. The traditional business model is subscriptionbased, but Netflix now has a growing advertising supported tier that gives a company a second major revenue stream. The bigger story is that Netflix is evolving beyond traditional ondemand streaming into a broader global entertainment platform, incorporating scripted content, live sports like the WWE, boxing, games, and video podcasts, as well as advertising. The company now reaches an audience approaching 1 billion people, giving Netflix enormous distribution scale across the globe. Now, Netflix competes with several large media and technology companies throughout the world. Disney competes through Disney Plus, Hulu, and ESPN. Amazon competes through Prime Video and Live Sports. And Alphabet, the parent company of Google, competes through YouTube, which is increasingly one of Netflix's biggest competitors for overall viewing time. Comcast competes through NBC Universal and Peacock. And the recent combination of Paramount Sky Dance and Warner Brothers Discovery creates a significantly larger traditional media competitor with Paramount, CBS, HBO, and Warner Brothers under one organization. Therefore, Netflix not only competes for subscriptions, but also for consumer attention, advertising dollars, premium content, as well as live sports agreement rights. Now, from a unique value standpoint, Netflix's biggest competitive advantage is its combination of global distribution, content scale, and its technology. The company could produce a program in one country and potentially turn it into a worldwide hit almost immediately and allowing Netflix to spread content costs across a very large international audience. Its recommendation technology is also a major differentiator. Netflix uses viewing data and artificial intelligence to improve content recommendations, search, advertising optimization and increasingly some production workflows. This gives Netflix an advantage not only in content discovery, but how it creates, distributes, and monetizes entertainment. Now, let's look at some recent news on Netflix. Going back to July 16th of this year, the company reported another second quarter solid results where revenue reached approximately 12.56 billion, up 13% year-over-year. Operating income reached approximately $4.2 billion, of around 11%, while operating margin actually remained very strong at 33.4%. 4%. On a diluted basis, EPS came in around 80 [snorts] cents a share. But the main issue with the price action is not necessarily profitability, it's the rate of growth. Revenue growth is actually slow despite beating the estimates from roughly 18% late last year towards the low teens today. And management's Q3 outlook suggests another modest deceleration. For all of 2026, Netflix expects revenue between 51 billion and 51.4 $4 billion representing roughly 13 to 14% year-over-year growth. While at the same time, operating income is expected to increase by more than 20%. So despite the fact that revenue growth is moderating, profitability keeps expanding faster than sales. That's important for price. Advertising remains one of the most important catalysts for Netflix. The company generated more than $ 1.5 billion in advertising revenue in 2025 alone, and management expects that figure to roughly double in 2026 to nearly $3 billion. Live programming is another emerging opportunity. Netflix also recently decided not to increase its offer for Warner Brothers after management concluded that a higher price no longer made financial sense at all. That decision reduced the acquisition integration risk and allowed Netflix to focus on organic sales and share repurchases while benefiting from an approximately $2.8 billion termination fee. Now, let's take a look at some other positives with the company. Netflix now carries events like the NFL games, WWE, Boxing, and selected baseball programming, which can attract new subscribers while creating premium advertising inventory. The company remains one of the most profitable businesses in global entertainment. If you look at operating margins, they are above 30% and earnings are growing faster than revenue. Once again, that's important in terms of how the price action of the stock develops. Advertising provides a meaningful second growth engine. While live sports and events give Netflix additional ways to attract subscribers and advertisers, the company, as I mentioned, also retains enormous global distribution and strong pricing power. They can increasingly monetize the same audience through subscriptions, advertising, pricing, as well as live events, which should help support earnings growth even if traditional membership growth starts to slow. And lastly, to support the stock price, the company has also resumed aggressive share repurchases, authorizing another $25 billion share buyback program, which becomes increasingly meaningful with the stock trading well below its previous highs. Now from a valuation standpoint with the stock at around $70 to $71 the market capitalization is close to $300 billion. The stock trades approximately 19.4 times forward earnings compared to the sector meaning around 13 times. So Netflix still trades at a premium relative to the broader sector. However, this multiple is well below the company's 5-year average of approximately 35 times earnings. Ford revenue growth is also approximately 13 a.5% while Ford EBID growth is approximately 22%. Again that difference is important because it shows Netflix is generating earnings growth faster than revenue growth through operating leverage. The valuation to price question is whether a roughly 19 times earnings multiple already discounts slower topline growth or whether improving profitability eventually justifies that higher multiple. Now let's also address some concerns with Netflix. First off, as I addressed earlier, the biggest concern is slowing growth. Revenue remains healthy, but it's no longer accelerating. While overall viewing hour growth has also been relatively modest, that means Netflix increasingly relies on pricing power, advertising, and better monetization to grow revenue faster than engagement. Competition remains intense, particularly from YouTube, Amazon, Disney, and the enlarged Paramount Warner organization. Live sports also can introduce additional risk because sports rights can be extremely expensive. Therefore, Netflix needs to demonstrate that the subscriber acquisition, retention, and advertising revenue generated by these events can justify higher content costs. Right now, let's take a look at the technical picture for Netflix. As you can see from the chart, the technical condition remains weak. The stock has underperformed the S&P 500 over the last 50 trading days and remains below a falling 50 and 200 day moving average, confirming a broader downtrend. Volume has also been heavier on declining days suggesting the stock remains under distribution rather than accumulation. The daily RSI is of around 46 while the MACD is essentially flat suggesting downside momentum is slowing but there is not yet a confirmed reversal. Now on the weekly chart RSI remains weak around 40 although MACD has begun to improve. So Netflix may be attempting to build a bottom, but the chart remains bearish until the stock can reclaim roughly 76 to $77, which is above that 50-day moving average, followed by the more important 83 to87 level, which is resistance from early September. Now, to summarize, Netflix remains one of the strongest businesses in global entertainment. Revenue continues to grow at a double- digit rate. Operating margins are high at over 30% and advertising is becoming an increasingly meaningful second revenue stream. Live program is also expanding Netflix beyond traditional ondemand streaming. While the decision to walk away from Warner Brothers demonstrated financial discipline and allowed the company to focus on organic growth and share repurchases, the challenge for the company is that growth is slowing while competition continues to intensify. So, the investment question going forward is fairly straightforward. Has a stock already discounted slower revenue and engagement growth, or is a technical weakness warning that Netflix's competitive advantage is beginning to narrow? All right, that's it for this week's edition of the Tech Corner. Please don't forget to like and subscribe to the Schwab Network. I'm George Sllis. We will see you next week. >> [music]