Netflix shares have been under pressure since late June, and sales intensified in October after the company emerged as a potential buyer of Warner Bros. Discovery.
Since June 30, Netflix stock has fallen about a third from its peak.
The stock recently hit its lowest intraday level since April, falling about 2% on Friday, according to GuruFocus.
Despite the decline, Netflix trades at about 28 times expected earnings for the next 12 months, higher than streaming rivals Disney, Amazon and Alphabet, as well as the S&P 500 and Nasdaq 100.
However, this is still below its five-year average multiple of 34.
Investors are focused more on the uncertainty of the deals than on Netflix’s day-to-day operations. The stock fell 10% on Oct. 22, its worst single-day drop in more than three years, following gains that raised concerns about future growth.
Attention then turned to the potential $82.7 billion acquisition of Warner Bros., with shareholders concerned about the high cost and Netflix’s lack of experience in large mergers.
Warner Bros. recently rejected an offer from Paramount Skydance, which later confirmed a $30 per share offer, but faces financial challenges, GuruFocus reported. Since June, Netflix has become the fourth-worst performing stock on the Nasdaq 100.
Opinions on Netflix’s valuation remain divided. Some investors see an opportunity if the acquisition occurs near the current price, while others worry about integration risks and Warner Bros. heavy debt.
Christopher Brown of Synovus Securities highlighted Netflix’s price-earnings-growth ratio of just over one, noting: “This measure appears more balanced than simple valuation ratios.”
He added that the stock could recover to between $102.50 and $109.70 if Netflix meets or beats fourth-quarter guidance.
Netflix will report earnings on Jan. 20, and Wall Street expects adjusted earnings of 56 cents per share on revenue of $12 billion.
Broader tech sentiment has been buoyed by earnings from other companies, including Alphabet, which is approaching a market value of $4 trillion.
