Elon Musk’s Space Exploration Technologies(SPCX+1.08%) went public in June. Investors were initially very optimistic about the company’s space transportation, satellite internet connectivity, and artificial intelligence businesses, so they piled into its stock, which sent it soaring to a peak of $225. However, it has since plummeted by 34% and closed at $148.68 last Friday, Sept. 25.
But SpaceX is still expensive. Based on the company’s hefty market capitalization of $2.02 trillion and its trailing-12-month revenue of $23 billion, its stock is trading at a price-to-sales (P/S) ratio of 87, making it 13 times as expensive as the technology-heavy Nasdaq-100 index.
As a result, more downside might be ahead for SpaceX stock, so if I had $10,000 to invest today, I’d probably look elsewhere. I think Netflix(NFLX-1.02%) could perform better over the long term thanks to its robust streaming business and attractive valuation. Read on.
Netflix is on track to double its advertising revenue this year
Netflix operates the world’s largest streaming platform for movies and television shows. It has over 325 million paying subscribers, so it’s towering over its nearest rivals, Amazon Prime and Warner Bros. Discovery (the owner of HBO Max and Discovery+), which have 200 million and 140 million members, respectively.
Netflix typically outspends the competition each year when it comes to creating and licensing content, which helps attract new subscribers. But it also offers different membership tiers that appeal to people of different income levels, and this has been a core part of its success. For example, the company introduced an affordable subscription option in 2022 for just $8.99 per month, much lower than its Standard and Premium tiers, which cost $19.99 and $26.99 per month, respectively.
However, in exchange for the lower price, subscribers to the $8.99 tier will occasionally see ads during programming. It seems to be an acceptable trade-off for consumers, because this tier consistently accounts for over half of all new signups in countries where it’s available. It’s also a win for Netflix, because it can charge businesses more money for ad slots as the membership base grows larger, so each subscriber becomes more valuable over time.
NASDAQ: NFLX
Netflix
Premium FeatureMoneyball Superscore
79/100
Today’s Change
(-1.02%) $-0.72
Current Price
$69.58
Key Data Points
Market Cap
$290BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.
Day’s Range
$69.51 – $70.30
52wk Range
$65.08 – $124.86
Volume
97.2K
Avg Vol
37.5M
Gross Margin
49.53%
Netflix has also started showing ads to members in every tier during live events, giving businesses an opportunity to showcase their products to the company’s entire subscriber base. This is partly why the streaming giant is investing heavily in sports content in boxing, Major League Baseball, the National Football League, and more. Not only can it charge more money for ad slots because of the larger potential audience, but also because live events tend to attract premium prices overall.
According to management’s most recent guidance, Netflix is on track to generate around $51.2 billion in total revenue in 2026, which would be a 13% increase from last year. But revenue from selling advertising slots, specifically, is expected to double to $3 billion. The advertising business is still in its infancy, but it could soon be a meaningful part of Netflix’s overall business if it continues growing at this pace.
Netflix stock is a bargain compared to SpaceX stock
As I highlighted earlier, SpaceX’s P/S ratio of 87 makes it substantially more expensive than the broader market. Netflix stock, on the other hand, has a P/S ratio of just 6.2, so not only is it much cheaper than SpaceX, but it’s also slightly cheaper than the Nasdaq-100, which has a P/S ratio of 6.4.
Moreover, Netflix is extremely profitable whereas SpaceX isn’t, so we can also value it using the more traditional price-to-earnings (P/E) ratio. The company generated earnings of $3.18 per share over the last four quarters, placing its stock at a P/E ratio of just 22.4.
That’s a significant discount to its five-year average of 39.3, but it also means Netflix is much cheaper than the S&P 500and the Nasdaq-100, which have P/E ratios of 23.5 and 35.2, respectively.
Netflix says it has captured only around 7% of its $670 billion global addressable market across streaming subscriptions, advertising, gaming, and more, so it still has a very long runway for potential growth. Therefore, I think its stock could be a very rewarding investment over the next few years.
