$Netflix(NFLX)$ Netflix is hogging the headlines again. This time is about the loss of 200,000 subscribers, the first loss since 2011. A far cry from analysts’ expectation of adding 2.5m subscribers. To make matter worse, Netflix now expect to lose another 2m subscribers in the second quarter. Share price has tanked over 25% after market hours.

I have analysed Netflix previously when the share price tumbled 40% so you can head on there if you want to know what has been going on in the company vs the competitors. I don’t want to repeat it here. https://www.facebook.com/550488660/posts/10158913153608661/

Despite the loss of customers compared to the last quarter, Netflix actually grew its revenue by 10% and its subscribers by 7% when compared to a year ago. So it isn’t that bad. Growth is definitely slower. The significance to me is that the video streaming model cannot propel Netflix to the big tech league.

In the past, Netflix has been put together with Facebook, Apple, Amazon and Google to form the acronym FAANG. But it has never been in the same league and unlikely it will be. Netflix’s market cap is about $115b after the drop. While the big tech are in the trillion dollar club - Apple at $2.7T, Alphabet at $1.7b, Amazon at $1.6T and even Meta is 5x larger than Netflix at $590b and was once in the trillion dollar club.

FAANG has been replaced by MAMAA, and Netflix has been dropped. Hence, don’t expect Netflix to be a big tech or will grow into one. It is not a growth stock anymore and that means investors should treat it more like a value stock.

Valuation is crucial for value stocks because the value of the company is no longer increasing at a rapid pace and might even stay stagnant. The way to make money is to buy only when there is a big discount to its value. Like a rubber band, when the price is overextended on one side, it snaps back to the value, providing a good capital gain to the investor. This also means that a value stock has to be sold at some point in time and not to be held forever.

Using revenue-based metrics are no longer good enough as value stocks are supposed to be profitable and generating good cash flow. PE or EV multiples are more relevant.

After accounting for the 25% price drop, the PE is about 23x. It is reasonable but not cheap until it is in their teens. EV/EBIT is at 20x. Again not cheap until it is in the teens. Free Cash Flow yield is still negative, which is terrible. It needs to generate more cash even after spending on content production.

Unfortunately Netflix is in a no man’s land now - neither a growth nor a value stock. It is in transition. Will take some time for Netflix to be more profitable and free cash flow positive, and for the market to adjust to this new expectation. Hence, I don’t see any opportunity right now with Netflix.