eyeQ: resurgent Netflix closes the valuation gap
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. Here’s the latest following cracking results from the streaming giant.
22nd January 2025 10:18
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Netflix
Macro Relevance: 47%
Model Value: $962.54
Fair Value Gap: -12.17% discount to model value
Data correct as at 22 January 2025. Please click glossary for explanation of terms. Long-term strategic model.
Netflix Inc (NASDAQ:NFLX) reported earnings late last night and the results were fantastic – their biggest-ever quarterly uptick in subscribers, Q4 revenues beat expectations, they announced subscription prices are going up and revised guidance for 2025 higher.
The new pivot towards sports and live events appears to have paid off: two NFL games and the Mike Tyson-Jake Paul fight added momentum to mainstays such as the second season of Squid Games. In short, they appear to have found a sweet spot - huge viewership plus increasing ways to monetise the user base.
The result was an immediate 13% rally in the stock price in after-hours trading, which, by coincidence, is almost identical to the valuation gap on eyeQ. The chart below was snapped at the end of the London trading day last night, i.e. before the earnings release. Prior to the results announcement, Netflix sat 12.17% cheap to macro conditions.
Netflix rose over 80% in 2024, but January has been less kind. The stock was down 7.5% year-to-date last week. But according to our modelling, the macro environment remained supportive. The January sell-off was not justified on big-picture grounds.
The catalyst for this catch-up was clearly company news. Indeed, when macro relevance is 47%, it means company fundamentals and macro fundamentals are each explaining around half of current price action.
Again, when US markets open later today, that valuation gap will largely close. Going forwards, keep an eye on eyeQ model value for the stock – an instant ready reckoner of where it “should” trade given big-picture stuff such as growth, inflation and the dollar. But this is a nice example of how investors need to marry up their views on individual companies with the macro outlook.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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