Meet the FAANG stock that has quietly outperformed every “Magnificent Seven” stock but one. According to a certain Wall Street analyst, it still has many advantages.
FAANG stocks were once all the rage. For the better part of a decade, Facebook (renamed Metaplatforms), Apple, Amazon, Netflix(NASDAQ:NFLX)and Google (now Alphabet) were among the most consistent players in the market. Each company dominated its own sector, delivering a windfall for determined investors who stayed the course.
Well, Wall Street is a fickle mistress, and with the advent of artificial intelligence (AI), investors shifted their focus to the future. Most FAANG stocks have made the transition to a new collective – the now vaunted “Magnificent Seven” stocks, a term that emerged in late 2023. This group consists of Apple, MicrosoftAmazon, Alphabet, Metaplatforms, NvidiaAnd Tesla.
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In an interesting turn of events, the one FAANG stock left out has outperformed all of its FAANG peers and all but one of the Magnificent Seven stocks. If you guessed Netflix, you’re right on the money.
Below, I’ll look at what brought the streaming giant back from the brink and why it’s reaching new all-time highs.
Image source: Getty Images.
Netflix pioneered the streaming video market and laid the foundation for all competitors that came after it. It has long been the undisputed leader in this space when it comes to subscribers, and after years of negative cash flow and rising debt, Netflix has finally turned the corner and delivered on its promise of strong and consistent profitability.
After a pandemic-induced growth spurt, Netflix became a victim of its own success. The combination of decades of high inflation and tough numbers sent fair-weather investors to the exits, and the exodus was dramatic. Between October 2021 and July 2022, Netflix shares lost 75% of their value.
Even as its stock price plummeted, the company kept going, with Netflix adding millions of new subscribers. Perhaps just as importantly, the company continued to increase sales and profits.
Over the past year, without much fanfare, Netflix has quietly outperformed all FAANG and Magnificent Seven stocks except Nvidia. That is indeed a momentous achievement.
As growth slowed, Netflix made a number of strategic decisions that paved the way for its success. At the risk of alienating long-term customers, the company announced a crackdown on password sharing, but its execution was brilliant. Netflix allowed users to add additional paid members for as little as $8, and the massive subscriber churn many predicted never materialized. The company also introduced a cheaper tier of ads, which appealed to viewers on a tighter budget.
These two decisions set the stage for future growth, and the results were impressive. In the third quarter, Netflix generated revenue that grew 15% year over year to $9.8 billion, while earnings per share (EPS) of $5.40 rose 45%. The results were driven by 5 million new paying subscribers, an increase of 14%.
It’s worth noting that the results exceeded Wall Street expectations, which expected revenue of $9.77 billion, earnings per share of $5.12 and a subscriber expansion of 4.5 million.
Despite Netflix’s standout performance, the best may be yet to come.
Recent developments illustrate that there is still a long way to go for the streaming giant. And those capabilities extend beyond basic streaming activities.
Earlier this month, Netflix revealed that its ad-supported tier had reached critical mass, with 70 million global users just two years after its debut. The company also noted that 50% of its new subscribers join the ad-supported plan, allowing the company to gain leverage with advertisers.
This also helps fuel Netflix’s pivot into live events. The recent boxing match between Mike Tyson and Jake Paul – and its undercard featuring Katie Taylor and Amanda Serrano – was the company’s biggest live event to date. Despite some reports of disruptions, the match was watched by 108 million live viewers worldwide, making it the “most streamed global sporting event ever” according to Netflix.
As an encore, Netflix has exclusive rights to two NFL games played on Christmas Day: the Super Bowl LVII-winning Kansas City Chiefs versus the Pittsburgh Steelers, and the Baltimore Ravens versus the Houston Texans.
It was recently announced that Beyoncé will perform during the halftime show of the Texans-Ravens game, performing songs from her latest blockbuster album, Cowboy Carter. The album received a record eleven Grammy nominations, the most ever for an album by a female artist, so it’s sure to generate quite a bit of revenue for Netflix.
Data per YCharts
Netflix has outperformed almost all of its FAANG and Magnificent Seven peers, with Nvidia being the outlier. Given the scale of the competition, the company’s already long list of credentials becomes even greater. That leaves us with the essential investing question: Is Netflix stock still a buy?
In the wake of its third-quarter financial report, Wall Street is looking to raise its price targets. The most notable comes courtesy of Pivotal Research analyst Jeffrey Wlodarczak, who maintained a Buy rating on the stock while raising his price target to a Street high of $1,100. For those keeping score at home, this represents a potential increase of 23% compared to Thursday’s closing price.
Despite the aforementioned technical issues during the boxing match, the analyst called it a “learning experience” for Netflix, suggesting it is unlikely to happen again. “Our view remains unchanged that Netflix has won the global streaming race, as evidenced by its year-to-date results and improved guidance,” Wlodarczak wrote in a note to customers.
Some investors may be put off by Netflix’s frothy valuation, and for good reason. The stock currently sells for 51 times earnings and 11 times sales, but that only tells part of the story. Wall Street predicts that Netflix will generate earnings per share of $23.77 in 2025. At that rate, the stock sells for about 38 times forward earnings. While that’s a clear premium compared to the overall market, it’s an attractive price for a stock that has beaten some of the biggest names in tech.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Meet the FAANG stock that has quietly outperformed every “Magnificent Seven” stock but one. According to a certain Wall Street analyst, it still has many advantages. was originally published by The Motley Fool
