It’s 30.68% off its all-time highs, but it still doesn’t exactly scream value. Is it cheap enough for me to buy?

Consumer sentiment 

According to the latest data from the University of Michigan, consumer confidence is at a five-year low. And that makes sense.

Source: Trading Economics

Mortgage rates are high, fuel prices are up, and artificial intelligence (AI) is threatening job security. On the face of it, that should be a risk for Netflix. 

With budgets being under pressure, people might think about cancelling subscriptions. But I think the opposite’s more likely. While I expect households to cut spending, I don’t see Netflix as an obvious casualty.

It offers a lot of value at a modest price. The firm’s most expensive tier is $26.99 a month. Compared to going out pretty much anywhere, that’s not expensive.

My suspicion is that those looking to pull in their spending might see it that way. Especially with cheaper tiers available.

Assets

Another risk with Netflix is its ongoing costs. The firm has to keep producing content and this involves guaranteed costs with uncertain returns.

The company tried to buy Warner Bros Discovery (WBD), but that didn’t work out. I think though, that might be a good thing. WBD has top-quality franchisees. That however, is no guarantee of success, as various owners of those assets have found. 

Netflix’s rival Paramount Skydance is set to pay $110.9bn for WBD. But it isn’t obvious to me that the firm can afford this. It’s a huge risk for Paramount. And I think Netflix might have been wise to let them take it – and claim a $2.8bn termination fee.

The situation reminds me of Teladoc Health buying Livongo in 2020. But if I’m right, then Netflix is the real winner here. 

Outlook

Netflix’s latest guidance fell short of Wall Street’s expectations. Revenues and margins for Q2 were below analyst forecasts. That’s a reflection of the two risks facing the company. Importantly however, engagement remains high. 

It’s the most popular streaming service behind YouTube by some way. And this is what I think ultimately matters.

Source: Fiscal.ai

Officially, Netflix shares are trading at a price-to-earnings (P/E) ratio of 30. That’s above the S&P 500 average, but is it cheap enough? It’s not where the stock was when the firm reported declining users in 2022. But chances to buy it at this level have been rare.

Adjusting for that $2.8bn windfall though, the P/E ratio is closer to 37. And that might be a touch high for a huge opportunity.

Is this my chance to buy?

I think Netflix is doing well and I see the firm as the real winner from the Warner Brothers Discovery deal. So should I buy the stock?

I have two thoughts. One is that I might not get a better opportunity – it’s trading at some unusually cheap multiples at the moment. The other however, is that I think I can see more compelling opportunities right now. So I’m watching closely, but I’m buying elsewhere.

The post 30.68% off its highs — is now my chance to buy Netflix in my Stocks and Shares ISA appeared first on The Motley Fool UK.

So which stocks are currently unloved? Well, worried about AI disruption, the market has rotated into value, leaving a lot of high-quality growth shares out of vogue.

As such, here are two stock dip-buying opportunities worth checking out.

Better insulated from AI risk

Let’s start with Netflix (NASDAQ:NFLX). The stock had sold off heavily since last summer, as investors worried about the streamer’s attempt to buy Warner Bros. Discovery for a colossal sum.

The company has now abandoned this debt-fuelled bid, sending its share price up more than 20% in recent days. However, at $95 per share, this still leaves Netflix almost 30% off its June high of $134.

As mentioned, AI is weighing on growth stocks. Some investors fear the technology makes content creation far easier, potentially enabling rivals to emerge with endless free AI content.

My view is this risk is overblown. Instead, I think people are quickly growing tired of ‘AI slop’, and that the high-quality content that Netflix creates with those quaint, flesh-and-blood human actors isn’t going out of fashion.

I reckon Netflix subscriptions will prove very resilient — and trend upwards over time, boosting profits.

Moreover, I think AI should benefit the firm rather than hurt it. For example, it should lower content creation costs, not necessarily by replacing human actors and writers, but by cutting production waste and improving dubbing and localisation technology.

AI should also improve high-margin advertising solutions and content discovery. Ad revenue is expected to roughly double in 2026, while Netflix expands into podcasts, cloud-first gaming, and live sports.

JPMorgan analysts agree, saying they “believe storytelling and talent will remain critical moats, ultimately better insulating Netflix from AI disruption risk compared to transactional business models“.

Netflix stock isn’t cheap today (it very rarely is). But I see no evidence that its ambition to become a $1trn company over the medium term — a more than doubling from today — is about to be derailed by AI.

Taking market share

Next, we have On Holding (NYSE:ONON), the Swiss premium sportswear brand. As I write, the stock is down 12% today (3 March).

This despite the company growing sales 30% to 3bn Swiss francs (roughly $3.8bn) last year. On a constant currency basis, revenue grew 35.6%, which is exceptional given the tough consumer backdrop.

So, what’s the problem here? The 2026 guidance for 23% sales growth, representing a deceleration from 2025. This figure is slightly below Wall Street’s expectations — shock, horror! — and currency changes present risks.

However, the strong ongoing growth indicates that On continues to take market share from legacy brands Nike and Adidas, due to its focus on innovation and high-performance footwear. Sales across Asia Pacific skyrocketed 96.4% last year.

Meanwhile, the gross profit margin increased to 62.8% from 60.6%, boosted by its premium positioning. And On expects this to rise to at least 63% this year.

The company is opening robotic factories to make its cutting-edge LightSpray running shoes, which over time should help insulate its profits from tariff uncertainty and supply chain disruptions.

The post 2 growth stocks to consider buying for an ISA in March appeared first on The Motley Fool UK.

The stock is down 40% from its recent highs, despite the company making more money than ever before. But there are a couple of things that need a closer look before making a decision.

Earnings

Netflix’s revenues were up 17.6% compared to the same quarter in the year before. And – importantly – this was partly the result of a strong performance in its advertising division.

As a result, profit margins widened and earnings per share grew 31%. The stock trades at a price-to-earnings (P/E) ratio of 33, which reflects high expectations, but this is still a strong result.

The firm’s forecast, however, is for revenue growth of between 12% and 14% for 2026, which is lower than what it just achieved. And this is a key reason why the stock has fallen after earnings.

High multiples typically mean investors are expecting sales to keep growing quickly. So the rate of increase slowing can cause the share price to fall as the multiple contracts.

Acquisition

At the moment, one of the key points of uncertainty for potential investors is Netflix’s attempt to buy Warner Brothers Discovery. Things haven’t been going to plan recently.

Back in December, Netflix had a deal to buy the firm’s studio and streaming assets. But this has developed into a bidding war with Paramount Global, which wants to buy the entire company.

As a result, the price has increased significantly. And instead of using its stock as currency in the transaction, Netflix has had to take a loan and pause its share buyback programme to offer cash. 

That greatly increases the risk with the acquisition. Warner Brothers Discovery has some top assets in terms of intellectual property, but there is a real danger of paying too much for them.

Opportunity?

Over the last 12 months, my view on Netflix has shifted significantly. I had been concerned that it might struggle to retain subscribers when household budgets come under pressure.

In fact, the opposite has been true. People have responded to cost of living increases by sticking to the streaming service as a relatively cheap source of entertainment compared to going out.

I stayed away from buying the stock, though, because it climbed sharply in April and I thought the price was too high. But it’s now trading roughly in line with its average valuation multiples.

Given this, the stock has made it back onto my list that I’m keeping an eye on. I don’t want to see the company overpay for an acquisition, but I do think it’s worth considering at today’s prices.

A quality company

The last time Netflix fell out of favour with investors was when subscriber growth faltered in 2022. But anyone who bought the stock then is now up 350% on their investment.

Uncertainty over the potential acquisition is weighing on the stock, but I think the business is still very strong. As a result, I’ll be taking a closer look when I’m next in a position to invest.

The post Is the falling Netflix share price the chance I’ve been waiting for? appeared first on The Motley Fool UK.

In hindsight, I should have scooped up shares in 2022 when the share price crashed 70% in just four months. But I didn’t and it’s rocketed 360% since then.

As I write today (21 January) though, the Netflix share price is down 4%. This means the streaming giant has now lost nearly 37% of its value since June.

So, is this my chance to finally add the stock to my ISA?

Acquisition drama

With 325m paying subscribers worldwide, Netflix likely needs no introduction. You’d struggle to find many UK households that had not seen at least one of its hit shows — Squid Games, Stranger Things, Wednesday, Black Mirror, Adolescence, etc — in the past 12 months.

The stock’s decline largely relates to the ongoing Warner Brothers Discovery (WBD) acquisition saga, which took a new twist recently. In a bid to fend off a rival bid from Paramount Skydance, Netflix has switched its $83bn offer to an all-cash deal.

This has caused a lot of investor uncertainty — not just about whether any deal would get regulatory clearance, but whether it’s worth doing at all. After all, Netflix hasn’t needed to do many acquisitions in its history, and this is by far the largest.

The company wants WBD’s content library and film studios, including the HBO Max streaming service. Management says “Warner Bros.’ library, development and IP will allow us to provide an even broader and higher-quality selection of content for members“.

Meanwhile, the addition of HBO Max will allow the firm to offer personalised subscription bundles. However, the transaction would mean taking on significant debt, which obviously adds risk for shareholders.

Wall Street downgrades

Near-40% drops in Netflix stock are pretty rare, and I suspect I might come to regret not buying this dip.

Then again, this acquisition drama could drag on for a while, especially from a regulatory standpoint. Any bidding war could put even more downwards pressure on the share price.

I note the stock has been downgraded by a lot of Wall Street analysts today. Part of this probably had something to do with the streaming giant’s 2025 results, which were published yesterday.

Because despite solid numbers for last year, Netflix’s guidance for 2026 seemed to disappoint some investors. It’s forecasting revenue of $50.7bn to $51.7bn, representing 12%-14% growth. Last year it was 17% growth on a constant-currency basis.

Meanwhile, it expects an operating margin of 31.5%, which was lower than Wall Street was expecting (32.6%).

My move

The WBD acquisition is creating near-term uncertainty. But now trading at around 23 times forward earnings (for 2027), the stock looks cheaper than it has for some time.

Longer term, I remain bullish on Netflix. Last year, its ad revenue surged more than 150% to over $1.5bn. As the streamer moves deeper into live broadcasting, I expect this figure to increase dramatically over the next decade.

Meanwhile, the firm’s building out its cloud-based gaming options and expanding into video podcasts. Further out, I expect AI could materially cut content creation costs.

After weighing things up, I’ve decided to open a starter position in the coming days.

The post Down 37%! Is now the time to buy Netflix stock for my ISA? appeared first on The Motley Fool UK.

However, the most disappointing by far has been Duolingo (NASDAQ:DUOL). Since I invested, my total paper loss is now around 50%. Ouch!

Sticky platforms

Whenever a stock collapses like this, it’s important to revisit the original investment thesis. If this is broken, it’s better to face up to reality because the stock may keep falling and never recover.

When I first explored Duolingo, I was sceptical the language learning app had any durable competitive advantage (moat). Yet it quickly reminded me of Netflix (NASDAQ:NFLX). Both are scalable, global consumer platforms monetised by subscriptions (mainly) and adverts.

As with Duolingo today, it wasn’t obvious back in 2009 that Netflix had a durable moat. Its streaming model could easily be replicated, and indeed has been since by the likes of Amazon, Apple, Disney, Paramount, and ITV. Ever more competition is a risk to growth.

Yet Netflix has endured because of its brand power, popular shows, and sophisticated AI/algorithms used to recommend content.

Likewise, Duolingo has a strong brand, highly engaged user base, and strong AI credentials. Its Birdbrain AI system processes over 1.25bn daily exercises, helping feed machine-learning models that personalise users’ learning experiences.

Crucially, both also have distinct corporate cultures focused on long-term value creation over short-term profits.

Our long-term goals remain unchanged: To be a great Internet movie service…and to grow subscribers and earnings every year while
continuing to invest in streaming.

Netflix CEO Reed Hastings, 2009 annual report.

One of our five operating principles is ‘take the long view’. The opportunity ahead of us is to teach billions of people, and while we’ve made incredible progress, we know we’re early in our journey.

Duolingo CEO Luis von Ahn, 2025.

Broken thesis?

Looking at Duolingo’s Q3 results, I see no evidence the growth story’s unravelling. Daily active users hit a record 50.5m while monthly users topped 135m.

Revenue jumped 41% year on year to $271.7m and adjusted EBITDA surged 68% to $80m.

Looking ahead though, management will shift focus from increasing paid subscribers (monetisation) to improving teaching quality to drive long-term user growth. And this risks some margin pressure and, possibly, lower-than-expected bookings.

Being realistic

Now to be clear, I’m not saying Duolingo will become a global juggernaut worth $480bn like Netflix. The streaming leader’s shares are up roughly 14,000% since 2009, and such returns are exceptionally rare. Hence why I said it only reminds me of a young Netflix.

Also, I don’t want to downplay AI threats or live translation from Google and Meta glasses. Although it’s worth remembering that people use Duolingo regularly to learn a second language, not translate conversations.

Meanwhile, ChatGPT has no structured curriculum and/or gamified features like streaks to keep users engaged.

Of Duolingo’s 135m users, only 9% (11.5m) today are paid subscribers. Considering there are 1.5bn people learning a foreign language, the market opportunity remains massive, especially in Asia. And this excludes maths, music, chess and other future subjects.

With the stock trading at a far cheaper valuation than six months ago, I think it’s worth assessing. I think the crashing share price doesn’t reflect the actual strength of the underlying business.

The post This growth stock down 50% reminds me of Netflix in 2009 appeared first on The Motley Fool UK.

Why did ITV fall?

The share price fall puts ITV at 69p. Given that this is towards a 52-week low, it’s perhaps a little surprising that Liberty chose now to slash its 10% stake. After all, it had held it for a decade.

As Dan Coatsworth, head of markets at AJ Bell, points out: “Investors might be concerned as to why Liberty Global has chosen to sell half of its position at time when the shares were trading close to a six-month low. Many large investors wait for a share price to be high before selling down.”

To be fair, ITV notes that Liberty had a “previously stated intention to divest of non-core assets“. So this doesn’t look like too much of a concern.

Acquisition target

There has been speculation for years that ITV could be acquired. A cheap valuation and the attractive Studios arm — which makes content for other broadcasters and streamers — give credence to the rumours.

Perhaps Liberty’s selling down will help pave the way for a sale or breakup of ITV. This might unlock some sort of shareholder value, especially as the media group is trading at just eight times forecast earnings.

Then again, would someone want the whole lot or just the Studios bit? I can’t imagine Netflix (NASDAQ:NFLX) would be interested in linear TV and the ITXVX streaming platform. Presumably, it would just want Studios and the back catalogue of content.

But who would want to invest in the remaining part, if it remained public? Without the Studios unit, I personally wouldn’t have any interest in ITV.

Losing relevance

Netflix is worth dwelling on because it’s arguably ITV’s biggest rival now that the FTSE 250 firm has fully embraced streaming.

Back in 2015, Netflix reported revenue of $6.8bn, with an operating profit of $306m. Meanwhile, ITV’s total external revenue was £2.9bn, with adjusted EBITA (earnings before interest, taxes, and amortisation) of £865m. ITV was therefore far more profitable.

By last year, though, this had totally flipped. Netflix’s operating profit was approximately $10.4bn on revenue of $39bn. ITV’s external revenue was £3.5bn, but adjusted EBITA was down to just £542m. 

These figures explain both ITV’s 75% share price crash and Netflix’s 1,000% rise. Essentially, the streaming giant has taken viewers from the former, and I don’t expect this to reverse meaningfully.

Nuance

Having said that, the reality is admittedly more nuanced because ITV actually distributes content to Netflix and other global streamers. For example, Studios made The Devil’s Hour for Amazon Prime Video and Run Away for Netflix.

The growing Studios arm is why I think ITV stock is probably undervalued. And right now, investors are being offered a well-covered 7.3% dividend yield to sit tight and wait for that value to potentially be realised. So income investors might want to consider the stock.

For me, though, I prefer Netflix stock. Granted, it trades at a far higher 34 times next year’s earnings, which adds risk if profits come in light. But the streaming leader’s growth potential — particularly from digital advertising — seems far more attractive.

The post How on earth has the ITV share price fallen by 75%? appeared first on The Motley Fool UK.

Here are two growth shares that I think are worth checking out today.

Musk backlash

Let’s start with the most topical, which is Netflix (NASDAQ:NFLX). As I type, the stock has fallen over 14% since the start of July.

In recent days, Netflix has come under fire from Elon Musk, who has repeatedly urged followers to boycott the platform. This relates to a transgender character in an animated show from two years ago.

Now, Musk obviously has a very large presence on social media, so it’s theoretically possible that a couple of million outraged followers could cancel their Netflix subscriptions.

However, my suspicion is that this won’t make much of a dent. At the end of 2024, when the company stopped reporting user growth, it had over 301m subscribers worldwide.

Besides, all this has probably come too late to impact Q3 numbers. It may show up in Q4 figures if this story rumbles on, but the main growth driver at Netflix nowadays is ad revenue. And that’s unlikely to stop rolling in over this issue, in my opinion.

Strong growth

Later this year, Netflix will air the final season of Stranger Things and Guillermo del Toro’s Frankenstein. Will fans really boycott such shows because of a transgender-related row on X? Possibly. But again, I reckon none of this matters to the long-term investment case.

In Q2, revenue rose 16% to $11.1bn. The operating margin came in at a very healthy 34.1%, while the full-year revenue forecast was increased slightly to $44.8bn-$45.2bn. That would represent solid growth of 15%-16%.

Advertising revenue is forecast to double this year, while the cheaper ad-supported tier should tempt in more subscribers as the long winter nights set in. Speaking of which, I’m going to watch House of Guinness over the weekend.

Netflix stock isn’t cheap (it never has been). But at 36 times next year’s earnings — falling below 30 by 2027 — I wouldn’t call it obviously overpriced. I only see Netflix getting stronger.

Rising sportswear star

The second growth stock I reckon is worth a look is On Holding (NYSE:ONON). This is the Roger Federer-backed premium sportswear brand.

The share price is down 30% since the end of May.

Now, it’s worth highlighting that this probably relates to the ongoing tariff uncertainty and weak sales across the sportswear industry. These both add an element of risk moving forward.

Despite this challenging backdrop, On is managing to grow at a rapid clip. In Q2, sales surged worldwide, resulting in a 32% increase overall (38.2% on a constant currency basis). Margins actually increased due to the firm’s premium pricing strategy.

For the full year, management expects sales to increase at least 31%. And the company sees a massive future opportunity to increase its apparel/accessories sales, as well as its share of the global premium footwear market.

As for valuation, we’re looking at a forward earnings multiple of around 27. That’s not very expensive for a profitable firm growing its top line at more than 30%!

As such, I plan to buy this growth stock for my ISA in the coming days.

The post 2 top growth stocks to consider buying for an ISA in October appeared first on The Motley Fool UK.

Is it now overvalued?

I am not so sure: I see an argument for the stock price run to keep going. But, for now at least, the price does not sit easily with me. So although Netflix is on my watchlist of stocks to buy if the price gets down to the right level, I will not be investing for now.

Marginal profits and Netflix’s potentially brilliant business model

When I say I am not so sure that Netflix stock is overvalued, it helps first to understand the economic concept of marginal costs and profits.

Think about an oil company like Shell as an example. It has certain fixed costs, from pipelines to petrol stations. If it can spread those over higher sales volumes, the fixed cost per barrel sold will fall. But there are also marginal costs: each barrel sold involves some additional cost, such as transportation.

Compare that to Netflix. Its fixed costs, such as making blockbuster shows and promoting them, are sizeable. So, if it does not attract and retain enough subscribers (or advertisers) it could be heavily loss-making. Arguably, producing shows is a variable not fixed cost – fewer shows could be made, to save money. But that could affect the attractiveness of Netflix’s value proposition for viewers.

Meanwhile, Netflix’s marginal costs are very small. Flicking a virtual switch to send content down the wire to a new subscriber is close to costless. So, boosting subscriber numbers (or subscription costs) can add sizeable marginal profits for the business.

Boom times prove the model

That is why it can be hard to value Netflix stock.

The current price of 52 times earnings looks expensive. But those earnings can rise sharply, as we saw not only last year but over the past several years. On that basis, the prospective price-to-earnings ratio may look more attractive.

But if earnings fall while fixed costs remain high, that valuation could be pricey. At a time when many consumers in the US and elsewhere are looking to manage their household budgets closely, I see a risk of lower demand or a need to reduce pricing plans.

Revenues in the most recent quarter grew 16% year on year. Net income grew faster (46%), as did free cash flow (87%).

That neatly demonstrates my point above about the attractiveness of the business model when it comes to low marginal costs meaning higher revenues can feed disproportionately into profits. Nor is this just about boosting subscriber numbers: Netflix expects to double ad revenue this year.

The past few years have shown how well the firm’s business model can work during good times. But how well might it withstand a tighter economy?

If revenue keeps growing, Netflix stock could move even higher. But in a tighter economy I reckon subscriber numbers could fall, hurting revenue and profitability. So, at the current price, I will avoid Netflix stock for now.

The post Up 76% in a year! Here’s why I like Netflix stock but not the price appeared first on The Motley Fool UK.

I’m not saying share prices are going to crash in the next six weeks. But I do think having an idea of which stocks might become attractive is probably a good idea.

Warren Buffett 

For a while, I thought a stock market crash shouldn’t change what I was buying. If everything falls 20%, the shares that are cheap relative to others will still be the same.

That however, misses something important. As Warren Buffett points out, it’s better to buy shares in a quality company at a fair price than the other way around.

Buying stocks that were already cheap at even bigger discounts might seem attractive. But as Buffett points out, it’s not where the real action is in a stock market crash. Instead, what investors should look for is situations where shares in outstanding businesses fall slightly below their fair value. And I have a few examples in mind.

Wise

Wise (LSE:WISE) is a business that’s right up my street. It focuses on making international money transfers faster, cheaper, and more reliable for customers.

One thing that stands out to me about the company is the fact its take rate – the amount it charges for transactions – keeps going down. I think this is very positive. In the short term, it means lower margins. But lower fees make it harder for competitors to undercut them on price, strengthening their competitive position.

Wise generates a lot of profit by earning interest on customer deposits, but this could fall if rates come down. That’s why I’m looking for a better price to buy shares at.

Netflix

Another stock on my list is Netflix (NASDAQ:NFLX). Five years ago, there were two big questions about the company, but these have been pretty emphatically answered.

The first was how the business might compete with the likes of Disney and its huge content library. But as of May, Netflix’s share of the US market is 50% higher. 

The second was whether people might cancel their subscriptions in an economic downturn. But the firm’s financial performance suggests it’s actually pretty resilient. 

One of the main risks at the moment is the prospect of a 100% US tariff on movies produced elsewhere. Unfortunately for me, this hasn’t taken much out of the share price.

Being ready

Stock market crashes can be great opportunities to buy shares. But while there’s always another one on the way, they’re regular and unpredictable. 

That means investors need to know which stocks they’d like to buy. Quality companies that fall to their fair value are better than average business at deep discounts.

Wise and Netflix are two stocks on my list. Both have extremely strong, competitive positions, but I think their share prices more than factor this in at the moment.

A big shake-up in the stock market however, and that could change. These aren’t the only shares I’m keeping an eye on with this in mind, but they’re near the top of my list.

The post 2 shares I’m looking to buy if the stock market crashes next month appeared first on The Motley Fool UK.

However, I still see five strong reasons to consider buying it now. Here they are.

Still growing

One thing that might put investors off is Netflix’s size. It had over 300m paid memberships at the end of 2024. How many more chapters are left in this epic growth story?

It’s a legitimate question. But we just saw in Q2 (reported 17 July) that the streaming giant continues to advance. Revenue rose 16% year on year to $11.08bn, driven by more members, higher subscription prices (more on that below) and increased ad revenue (ditto).

Revenue in the Asia Pacific region jumped 24%. The operating margin improved by 7% to 34%, while free cash flow surged 87% to $2.3bn.

Looking ahead, management sees full-year revenue of $44.8bn–$45.2bn (higher than previously thought). That would represent solid growth of about 15%–16%.

King of content

Another reason I’m bullish is because Netflix has something for everyone. Its new animated film KPop Demon Hunters is a global sensation, while Adolescence even sparked a debate in the UK Parliament earlier this year.

In Q2, season three of Squid Game racked up an eye-popping 122m views, while Exterritorial from Germany (89m views) and Spanish-language film Bad Influence (46m) both went down well.

Its worth noting that the three examples above are non-English language content, which now makes up more than a third of all Netflix viewing.

In the second half, season two of Wednesday and the Stranger Things finale will be released. Safe to say, Netflix remains a content juggernaut.

Pricing power

At the weekend, I paid £24.99 to watch Usyk vs Dubois 2 on DAZN. But in September, I’ll be able to enjoy the Canelo vs Crawford boxing mega-fight live as part of my Netflix subscription. That’s great value, in my eyes.

Netflix raised subscription prices in January, and this didn’t result in mass cancellations. Consequently, I think it has plenty of pricing power left to flex.

I mean, the cheapest plan, Standard with Ads, costs just £5.99 per month today. That’s less than fish and chips!

New revenue

Speaking of ads, the firm has completed the rollout of Netflix Ads Suite, its proprietary first-party ad tech platform. Management expects to roughly double global ads revenue this year, before reaching $9bn by 2030.

The main risk I see here is valuation. After rising 37% year to date, the stock is trading at 48 times forward earnings. If growth unexpectedly slows, say because an economic downturn impacts the global ad market, Netflix shares could pull back sharply.

The company also faces growing competition for younger audiences, particularly from TikTok and YouTube.

Longer term, however, targeted advertising is a powerful new revenue driver, especially as Netflix moves further into live sports.

Artificial intelligence

Finally, Netflix recently used generative AI to produce visual effects for the first time in one of its original series (The Eternaut). Co-CEO Ted Sarandos commented: “AI represents an incredible opportunity to help creators make films and series better, not just cheaper.”

As AI improves over time, I expect it to slash production costs, boost creative productivity, and ultimately fatten profit margins.

The post 5 strong reasons to consider buying Netflix for a SIPP or Stocks and Shares ISA appeared first on The Motley Fool UK.