Netflix – The Success Story Continues?
Netflix has been one of those success stories which all are drawn to, not only on Wall Street but also in general, appealing to individuals looking to achieve the “American dream”. Currently, even after Apple and Disney entered the online streaming world, Netflix is the most popular amongst consumers’ choice.
The achievement can easily be seen by traders analysing the price movement of Netflix’s Stocks. If we look at the price movement over the last 4 years, we can see that the stock has increased in value from $95 to $405. We can compare this to Apple which is equally as popular on Wall Street. In fact, Apple stocks have increased from $105 to today’s price of $280, almost having tripled in value, whereas Netflix has quadrupled.
Is Netflix Overbought?
Something for traders to also bear in mind besides the great upsurge is that Netflix has now reached its previous point of collapse, and that the growth has halted over the last week. In addition to this, the stock is considerably higher than that of its competitors.
So what do traders who are interested in Netflix need to concentrate on? The best place to start is last week’s quarterly release. A quarterly report is a summary or collection of unaudited financial statements, such as balance sheets, income statements, and cash flow statements, issued by companies every 3 months.
In Netflix’s case, traders are also massively interested to see how many new subscriptions they have had over the past quarter, which is another fact also known to affect the instrument’s Supply and Demand.
As government quarantine orders went into place around the world, Netflix stocks in particular seemed to be getting a lot of attention immediately after the stock market crash. The Netflix Stock was actually one of the first assets to cease depreciating.
People looked to providers such as Netflix to fill their extra time at home. Binge-watching is certainly easier when you don’t have an early commute ahead of you and most individuals working from home are having Netflix playing in the background.
Quarterly Earnings Release
The first quarter was roughly meeting expectations in the first two months. In March, the coronavirus changed everything. Subscription growth blew away analysts’ estimated – 8 million, as growth jumped by 15.8 million. This was expected by the market hence why we saw Netflix Stock prices rise fast coming up to last week’s announcement.
As for earnings, they came in lower than estimated at $1.57 per share compared to an expected $1.65 per share. Still, it was an increase of 107% over the prior year. That’s a deceleration from the 333% growth of the prior quarter. However, a triple digit growth can often make that forgivable. Therefore, the overall results from new subscribers and earnings per share came in with positive figures.
Balance Sheet Issues?
Netflix’s cash issue is not a new story. It is something which analysts have been debating for over 2 years. All large companies have debt and this is natural, however, Netflix has a relatively large debt.
According to company financial statements, 2018 saw a balance sheet hole larger than $3 billion. That deficit grew to $3.3 billion in 2019 in what was expected to be the peak of negative free cash flow. Their goal of slowly bringing that number to positive, originally had a 2020 projection of negative $2.5 billion.
Now with the production halt due to the spread of the coronavirus, some of those cash outlays are uncertain. The company has donated relief funds to support those affected by production halts, and paid directly those on Netflix projects as a bridge until government stimulus kicked in.
The expectation is for a continued trend toward positive free cash flow but some analysts are pessimistic regarding the timeframe. The original content Netflix produces gives them more control and better profit margins. For sure they are keen to keep the trend going.
“Will it pay off?”
This is the question that traders are asking now. And maybe you should be asking yourself the same!
Overall, Netflix’s achievement can very easily be seen by the performance of the stock. Subscribers are increasing and earnings are still in triple-digit growth. The company seems to be little fazed by the newcomers in the streaming market and so do traders.
However, it seems to be clear that traders are cautious when it comes to purchasing Netflix shares above this price. Most traders are most likely patiently waiting for the price to drop in order to repurchase the stock at a more reasonable price. Some traders may be waiting for a large drop, whereas others may be waiting for a more reasonable discount. But what is your opinion?