(Bloomberg) — Netflix Inc. shares hit their first record high in nearly three years as investors continued to flock to the video-streaming company as it executes on its strategy to improve profitability.
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Shares of the Los Gatos, California-based company rose 1.5% on Tuesday, surpassing their highest level since November 2021, the height of its COVID-19 success. In a sign of its growing advertising muscle, the company earlier Tuesday disclosed a more than 150% increase in initial ad sales commitments compared to 2023.
“Investors are really embracing Netflix’s strategy,” said Daniel Morgan, portfolio manager at Synovus Trust. “The story of Netflix in the past was that they spend a lot on content, they have negative free cash flow, and they’re going to issue debt. But they don’t do that anymore, and that’s made a big difference. They’re really ahead of the pack here, and they’re getting rewarded for that consistency.”
The record represents a remarkable turnaround for the stock, which at one point had lost more than 75% of its value from its 2021 peak. The stock has quadrupled since then as Netflix cracked down on users sharing accounts and introduced an ad-supported subscriber tier — moves it had long resisted but that have proven successful in alleviating investor concerns about growth and cash flow.
Beyond the financial improvements, the company had a number of major successes in the last quarter, including a new season of Bridgerton, the unexpected hit Baby Reindeer, and the French film Under Paris. It also made strides in sports and live events, and in the second quarter, Netflix extended its lead over its competitors, adding 8.05 million customers.
Shares rose for a sixth straight session and are up more than 40% this year. That puts Netflix ahead of Walt Disney Co., which will be slightly negative in 2024, and well ahead of Warner Bros. Discovery and Paramount Global, which are down more than 25%.
Netflix shares have surged to a 14-day relative strength index of 72.5, putting it in overbought territory. However, the improvement in earnings has eased concerns about the company’s multiples. Netflix is trading at 32 times estimated earnings, less than half its 10-year average of 72. The Nasdaq 100 has a multiple of 26.
“The multiple is not surprising, and it has started to decline because the company’s profitability has improved significantly,” Morgan said. “That’s another reason to feel comfortable, and why analysts and investors have embraced the change in strategy.”
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