Why Netflix Is A Buy Right Now!
I’m interested in growth because I’m young and my risk tolerance is higher. Companies that pay dividends don’t appeal to me because I don’t need the recurring income, as I have a job to pay my bills. I would rather see companies use that money to fuel their growth in the short and long term. If we’re looking at today, with all the uncertainty abroad, I would want to stick to a US-based stock for security, and I feel that with it being an election year, it has brought volatility into the market for opportunistic investments at specific times.
Investing In Netflix Stock - It Is A Buy Right Now!
*Not investment advice
I’m specifically interested in tech, and Netflix Inc (NASDAQ:NFLX) recently reported their earnings. They beat estimates on revenue and earnings, but missed widely on new subscriber growth, sending the stock down 16%. I think this signals a great buying opportunity, as Netflix still has a large market to capture abroad, and these headwinds are a short-term issue.
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Q1 2020 hedge fund letters, conferences and more
As shelter-in-place orders went into place around the world, Netflix Inc stock in particular seemed to be getting a lot of attention. People looked to content providers to fill their extra time at home. Binge watching is certainly easier when you don't have an early commute ahead of you.
Coronavirus Boosts Netflix
The first quarter was seeing expectations roughly met in the first two months. In March, the coronavirus changed everything. Subscription growth blew away the 8 million estimated by analysts as growth jumped by 15.8 million.
International subscriptions have been a large source of revenue growth for the company. In their latest letter to Netflix Inc stock shareholders, management pointed out that over half their revenue is not denominated in the U.S. dollar. The strength in the dollar during the coronavirus economic impact offset a lot of the revenue gains seen internationally. That put the revenue growth of 28% in line with expectations.
As for earnings, they came in lower than estimates at $1.57 per share vs. an expected $1.65 per share. Still it was an increase of 107% over the prior year. That's deceleration from the 333% growth of the prior quarter but triple digit growth can often make that forgivable.
Netflix came in second for nominations and wins in the 2019 Emmy race, just behind HBO. For the Oscars in 2020, Netflix took the title of most nominations at 24. Though they only won two, it still speaks to an impressive achievement given their original film initiative is under five years old. But can it convert the awards and accolades into more subscribers? The answer in this day and unprecedented times is – yes; and it continues to demonstrate just how.
Growth Opportunities
With the investment in high-quality programming available only to subscribers, Netflix is trying to increase not just its viewership but the time spent using its service. That's where it sees its growth opportunities. In its letter to shareholders from the first quarter 2019, the company emphasized that even in its most mature market, the U.S., TV streaming hours on Netflix only make up 10% of total TV usage. Cable and satellite TV providers still dominate the market. But as viewers shift away from a linear-programming model, Netflix is a contender for a place to land. But the competition is heating up.
Walt Disney (DIS) joined the streaming game as a serious contender with its Disney+ launch in November. Wall Street cheered the announcement, pointing to Disney's huge content library and attractive price point of $6.99. Marvel Comics superheroes and "Star Wars" epics, along with other Disney-owned content, will no longer drive viewers to Netflix but rather to the competition.
Netflix says it welcomes the competition. With Disney offering more family-oriented programming, there is certainly room for both. Especially when the combined price tag is only $20 per month. But in the short time since launch, Disney has gained a lot of ground on the domestic subscription numbers of Netflix. Granted, they also have to contend with the rising costs associated with the new service.
Outlook For The Stock In The Current Market Environment
When all is said and done, Netflix Inc stock turned a corner in 2020. The handle that got tacked on to the 2019 base is really a base in its own right. And the relative strength line is soaring. The S&P 500 fell 35% from its February highs to its March lows. Netflix Inc stock only fell 26% during that time. That quickly sent the relative strength line to new highs and improved the outlook. The S&P 500 had a follow-through day on April 2 and the Nasdaq composite followed suit April 6. That puts the market in a favourable position. While true that not all follow-through days’ work, Netflix is one of the better looking patterns in the current market environment but is currently extended from its April 13 breakout. It's best to wait for another consolidation before making another purchase.
The earnings reaction and pause in the market knocked Netflix Inc stock down 6% off its high, but it needs more time to truly give another buying opportunity. The technical and fundamental action are currently painting a better picture than the stock has seen for nearly two years. As such it should remain on your watchlist.
Overall, long term I feel the company is well positioned to significantly increase their growth and market share abroad. In conclusion, I wouldn’t want a single stock to be more than 3-5% of my overall portfolio, as it is not advisable to over invest in one specific equity, no matter how bullish I might be.
Disclosure: None
