NFLX Down 40% Y/Y: Can Streaming Giant Turn Up Volume on Rebound Story?

SPEAKER_1 (0:00)

We're back on Morning Trade Live. Let's focus on some of the streamers this morning. We're seeing Netflix higher by 2.5%.

So it's outperforming the rest of the streaming space this morning. Walt Disney's down just fractually, Comcast down 8 tenths. Paramount Skydance, which has obviously been a story we've been tracking very closely around the soap opera involving that company down 2.5% right now. But Netflix very much is the focus of the morning trade. It got an upgrade this morning. So let's talk about it with Marley Kayden. It looks like people aren't giving up on Netflix right now, given how much it's come off this year. Marley, just walk us through the note.

Marley Kayden (0:37)

Deutsche Bank certainly isn't. They upgraded Netflix this morning to a buy from a hold. They went so far as to say that the market's what they call obsession over the US time spent on the streaming service is actually overlooking the company's larger total addressable market, and what they call its healthier international engagement trends. Their Netflix international time spent has increased year over year in each of the past four six month periods. And Deutsche Bank believes that this year's softness in the US could simply be driven by what they call less creative success. But they say that Netflix has an established competitive advantage and a substantial lead over competitors in international production. And why that matters so much is that more than 60% of its content is now produced outside of the US, which this analyst over at Deutsche Bank says he believes that will help the company keep its global lead. The bank did trim its price target slightly to $95 from 100 after they lower the operating income and free cash flow estimates. But that target still implies about a 37% upside, Sam. The stock's valuation, they say, also now offers an attractive entry point. The analyst said that Netflix is trading at about 18 times Deutsche Bank's 2027 earnings estimate. That's down from about 40 times forward earnings back in June of 2025 when the stock peaked. He said, quote, We never thought the 40 times as reasonable multiple for Netflix, given the company's decelerating growth outlook. However, at 18 times, we believe the current and still very healthy growth outlook is being undervalued, leaving room for multiple expansion to the low to mid 20 times range on top of 23% EPS growth in 2027

The analyst added that Netflix brand scale and expertise position to expand as a platform rather than just simply remaining a producer and programmer of its own shows also has it well positioned among the other streamers. And he also cited AI. This one I thought was interesting too, as we're in the middle of this AI disruption debate. He called AI, quote, more friend than foe for Netflix and said that as a technology driven company since its founding, he believes that Netflix can actually apply AI to content production, personalization and advertising more effectively than some of its rival streamers can, Sam.

SPEAKER_1 (2:56)

All right, good stuff. And obviously we are seeing it outperforming the rest of the streaming space today off the back of that. So cheering somewhat from investors up 2.5%. Thanks, Marley, for the details. Let's trade it now with Tim Biggam, options strategist over at Pilot AI. Tim, good morning. How would you approach an example trade on this one that's been beaten down this year?

Tim Biggam (3:16)

Yeah, I'm good morning, Sam. I'm neither a friend or foe kind of Netflix around these levels here. I think the valuation is certainly getting cheap. That 65 level, certainly long-term support on the charts here, everyone eyeballing that. But 75 is kind of that gap from the last earnings where the stock got torpedoed. So I'm using those two prices, kind of the structure, and I in condor trade, really looking for bleedout sideways here in front of earnings coming October 20th, so going to the traditional October 16th expiration options, selling the 75-77 call spread, at the same time selling the 65-63 put spread, bringing in a little bit more than 40 cents last I looked. So like that 25% return on risk, avoid earnings, right, which I think is key. You want to avoid event risk. If you certainly can. And giving myself plenty of cushion and those major support and resistance levels to kind of hang my head on here. So I know if it does break through either way with conviction, I'm probably wrong and close out the trade. Plus have plenty of time decay. And I think the stock will probably settle down in front of earnings. Also unusual that you get a upgrade on a stock from buy, you know, from where it was at hold, but a lowering of the price target. So certainly not a huge upgrade by Deutsche Bank to say the least on the shares.