Netflix trades at 18.9x forward earnings, close to the sub-15x multiple it carried at the 2022 bear-market trough, while its advertising business scales toward a potential $10 billion by 2030. CNBC’s Michael Khouw argues the cheaper stock now sits against a better business, and he laid out an August options structure that sells volatility instead of buying the shares.
Netflix’s multiple has compressed to 18.9x forward earnings, down near the below-15x level it reached at the 2022 bear-market trough, even as the underlying business improved. Growth investors departed when the company stopped highlighting subscriber adds to focus on revenue, margins, and free cash flow. Value investors have not fully arrived either, because legacy media such as Disney, at under 13x, looks cheaper on paper.
According to CNBC’s Michael Khouw: “Netflix’s stock price may have lost the plot, but its fundamental narrative remains intact.”
The advertising engine behind the case
With about 325 million paying members, Khouw says Netflix offers connected TV advertisers the cleanest audience at scale. Its default ad tier creates a line of sight to $10 billion in ad revenue by 2030, from roughly $3 billion expected this year.
Management is meanwhile buying back stock aggressively rather than overpaying for legacy studio assets, and Khouw treats generative AI as a net positive because it reduces production, dubbing, and localization costs — a direct boost to margins at a company whose biggest expense is content amortization. Live sports, spectacles, and AI-driven personalization target flatlining view times to protect pricing power.
The August structure Khouw described
Paying 18.9x for a higher-margin, cash-generative Netflix is only four turns above the worst moment in its public history. That, Khouw argues, makes selling volatility more attractive than buying shares outright.
That preference takes the form of a defined-risk covered strangle. With the stock around $70 and 25 calendar days to August expiration, it sells the August 65 put and the August 78 call while buying the August 88 call as an upside tail hedge.
That structure takes in a net credit of $1.10, roughly a 1.5% yield in 25 days or more than 20% annualized. It stays profitable between $63.90 and $79.10, bracketing about 9% downside and 13% upside, with the gain capped at 10 points by the August 88 call.
The downside is assignment: if the put goes in the money, the effective entry becomes $63.90, or about 17x forward earnings.
Source: CNBC
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