Is Netflix Stock a Buy Near Its 52-Week Low?

Netflix (NASDAQ:NFLX) can't catch a break. The company has been lagging the market over the past year, and recent developments have put even more pressure on the stock. On Oct. 20, Netflix reported its third-quarter earnings. The market wasn't impressed, sending shares down significantly post-earnings. Netflix's stock price is now hovering around its 52-week low. Could the company bounce back? Or is it time to give up on the streaming giant?

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Why did Netflix's stock dip?

Netflix's third-quarter update didn't look that bad at first glance. The company's revenue of $12.9 billion increased 11.8% year over year. Netflix's operating income of $4.5 billion jumped 37.3% compared to the year-ago period, while its earnings per share came in at $0.87, 47.5% higher than the prior-year quarter.

It's usually a good sign for any company when profits are growing faster than revenue. Meanwhile, Netflix's free cash flow climbed 8.4% year over year to $2.9 billion. So far so good. However, Netflix's revenue and earnings guidance for the fourth quarter missed analysts' projections.

That's one of the reasons the company's shares dropped post-earnings. It's also worth noting that Netflix adjusted its advertising revenue guidance for the year. The company previously expected revenue of $3 billion for this unit, but it reduced that estimate by about $300 million, which Netflix blamed on a slower-than-expected rollout of some ad product capabilities.

For a company that was already in the proverbial doghouse, that's terrible news. Even management highlighted that there is room for the company to improve.

There is hope for a rebound

Does Netflix need a complete shift in strategy? Management doesn't think so and instead plans to lean on what has worked in the past, including the company's original content strategy, especially in its most important market, the U.S. That makes sense.

Many of Netflix's original shows and movies have been very successful and have helped boost the platform's engagement by spreading through word of mouth. This has helped strengthen the company's significant pricing power and supported sales growth through price increases.

Also, Netflix may be underperforming, but that doesn't mean the business is in serious trouble. Right now, Netflix's problem is execution, and it intends to fix it. To that end, Netflix recently appointed Peter Rice, who held major leadership positions at Fox (NASDAQ:FOX) and Disney (NYSE:DIS), as its chief content officer.

While it's true that Netflix faces more competition than it did when original productions first became the most important aspect of its strategy, at least one thing hasn't changed: The company still boasts the largest number of streaming subscribers in the industry.

That means it can inform its content decisions with data on viewer habits on its platforms, and it arguably has more of it than any of its competitors. The fact that viewing hours are barely growing suggests that the quality of the company's recent productions hasn't been to its subscribers' liking, but fixing that problem will likely improve engagement and sales growth over the medium term.

Of course, Netflix will seek to make progress elsewhere, including in live events, which represent a massive and highly lucrative opportunity, particularly in the sports niche. Netflix significantly trails some of its streaming peers in this corner of the market. Closing that gap somewhat might also be another way for the company to increase revenue growth.

Further, Netflix continues to push in advertising. Netflix intends to introduce its ad tier in 15 new countries in 2027, with the first launches scheduled for March. All these efforts could work wonders down the road, and it wouldn't be the first time Netflix has found a way to overcome significant challenges.

I expect the company to leverage its strengths, including its powerful brand, deep subscriber ecosystem, and pricing power, to capitalize on the vast remaining worldwide opportunity in streaming and advertising. Near its 52-week low, Netflix's stock looks like a buy for investors willing to stay the course.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.