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Investors Should Be Looking Into
Earlier this week, investors saw themselves surprised when Netflix (NASDAQ:NFLX) released its latest financial quarterly report.
According to its numbers, this quarter had only seen a relatively low subscriber growth. One that was not even close to the shareholders’ prior expectations. Of course, this became problematic for all investors who already had their hands in some Netflix stocks.
However, that shouldn’t be the case at all.
Netflix is a company with several business ventures. Meaning, the company counts with more than one metric that would easily allow for an accurate evaluation of its current performance. Its subscriber growth rate is only one of many.
In the end, anybody interested in Netflix as an investment opportunity should instead be aiming to use these to make a proper evaluation of the company’s current status. Contrary to what were to happen if you based all of your investment choices on just one of these metrics.
Here’s a look at Netflix’s four most essential metrics.
As its name suggests, this metric quantifies how many newcomers Netflix has recently welcomed on its platform within a given time frame.
By the end of last year’s financial period, Netflix had already reached a number of 208 million subscribers. Last quarter alone, Netflix managed to add 3.98 million new members to that original number.
Netflix underperformed in this metric during this quarter, as professional-made predictions saw prospects for even bigger numbers (6 million, to be exact).
However, not all investors are aware that Netflix’s business model aims for accuracy, not conservatism. Meaning, this metric is contemplated sometimes to over-perform and sometimes underperform.
This misconception alone has led people to overlook that Netflix was still able to bring down an increase. Albeit a relatively small one.
In the financial world, a small victory is still a victory.
When it comes to revenue growth, this metric calculates the size of Netflix’s total business income, as well as how much it has grown over time.
As it is for many other investments, a great rate of revenue is the most desirable.
By the end of last year’s financial period, Netflix was capable of making its revenue grow 24.2%, compared to the numbers of the previous year. This translated to total revenue of $7.2 billion.
The average revenue per user
Another helpful metric would be to calculate how much every customer pays for these services. Keep in mind that as this value constantly changes over time, it helps to always aim for having the most recent one at hand.
The higher the value, the higher the amounts of profit being received from each user. Likewise, the bigger the profit being made overall.
However, it is crucial to understand that this value is not the same as their current membership prices. As every country charges a different amount for the same service, an average amount would the most accurate option for our purposes.
Most recently, Netflix has increased its membership prices once again. For the average value, it ended up representing an increase of 6%.
An operating margin measures how much profit a company makes after removing all production-related costs from the total amount.
When it comes to this metric, higher numbers are usually better, as it means that the company’s operations are efficient and easily capable of turning into a profit.
Luckily, that stands to be Netflix’s case.
Its robust business model has steadily managed to reach record high operating margins of about 27%. In a monetary amount, that translates to a profit of $2 billion.
Netflix is not going downhill, and it’s just as strong as ever
While Netflix has undoubtedly failed to meet expectations on subscriber growth alone, the company’s overall numbers are just as encouraging as ever.
The number of members is still increasing. The probability is surging as well, and Netflix’s financial decisions are smart enough to keep a remarkable profit after everything has already been done.
So, in the end, choosing to follow a lackluster metric did not reflect its true performance and considering them all painted a completely different picture.
In reality, investors have no actual reasons to be worried at all. Netflix still comes as a reliable opportunity for any investor.