Internet television network Netflix (NFLX) has taken a commanding lead in the streaming video market and investors have bid up NFLX stock as a result. But some people might be wondering: Is Netflix stock a buy right now?
Los Gatos, Calif.-based Netflix started in 1997 as a subscription DVD-by-mail service in the U.S. That innovative service ultimately drove movie rental giant Blockbuster out of business.
In 2007, Netflix began offering a streaming video service with licensed movies and TV series. It later entered the content production business and released its first original series, “House of Cards,” in February 2013.
In a January 2013 article in GQ magazine, Netflix Chief Content Officer Ted Sarandos laid out the company’s original content strategy: “The goal is to become HBO faster than HBO can become us.”
Netflix still offers its legacy domestic DVD-by-mail service, but no longer promotes it. The company always believed its future was in digital delivery of video entertainment. Netflix offers its ad-free, subscription video-on-demand service in over 190 countries.
Subscriber Growth Drives Netflix Story
Over the last several years, Netflix has been laser-focused on growing its global subscriber base. It wants to build a competitive moat with scale. It has been investing heavily in local-language original content production worldwide. Netflix stock performance is linked to its net subscriber additions.
Netflix ended the first quarter with 207.64 million subscribers worldwide. The U.S. and Canada accounted for 35.8% of its total subscriber base.
Stay-at-home orders during the Covid-19 pandemic have driven business for Netflix and other home entertainment services. Consumers have watched more television because movie theaters, live music and sports were shut down during the pandemic.
Even before the pandemic, Netflix stock benefited from the cord-cutting trend as people quit traditional pay-TV services.
Netflix Stock Fundamental Analysis
In the March quarter, Netflix added 3.98 million streaming subscribers, missing Wall Street’s target of 6.3 million. Netflix stock fell 7.4% in the first trading session following the news, released late April 20.
For the current quarter, it forecast adding just 1 million subscribers. Analysts had been modeling 4.4 million net new adds in the second quarter.
Netflix expects subscriber additions to pick up in the second half of the year thanks to a stronger content slate.
Netflix earned $3.75 a share on sales of $7.16 billion in the first quarter. Analysts expected Netflix to earn $2.97 a share on sales of $7.13 billion. On a year-over-year basis, Netflix earnings jumped 139% while sales climbed 24%.
For the second quarter, Netflix forecast earnings of $3.16 a share on sales of $7.3 billion. Analysts expected for Netflix earnings of $2.68 a share on sales of $7.39 billion. In the year-earlier period, Netflix earnings were $1.59 a share on sales of $6.15 billion.
Netflix stock spiked to a record high of 593.29 on Jan. 20, the day after its fourth-quarter earnings report. Wall Street analysts were cheered by the company’s improved free cash flow and profitability. But the enthusiasm was short-lived and NFLX stock sold off in the days that followed.
The company anticipates 2021 free cash flow at break-even, turning positive in 2022. Sometime thereafter, it will be in a position to do share repurchases to return cash to investors, executives said.
Netflix Content Attracts Subscribers
Since it started its original content push, Netflix has launched quite a few hit shows. They include “Money Heist,” “Orange Is the New Black,” “Stranger Things,” “The Umbrella Academy” and “The Witcher.”
It also has premiered popular original movies such as “6 Underground,” “Bird Box,” “Extraction,” “Murder Mystery,” “Spenser Confidential” and “The Old Guard.”
Recent buzzworthy shows on Netflix include TV series “Bridgerton,” “The Queen’s Gambit” and “Emily in Paris.” Popular new original movies include “I Care A Lot,” “Yes Day” and “Outside the Wire.”
A survey by investment bank Cowen showed that Netflix’s growing library of original content is the top draw for subscribers.
On Oct. 29, Netflix raised prices for the standard and premium tiers of its subscription video-on-demand service in the U.S. Netflix stock jumped on the news.
Netflix also has started to crack down on password sharing in a move to convert freeloaders to paying users.
Meanwhile, Netflix is facing new competition from traditional media companies. AT&T (T)-owned WarnerMedia launched HBO Max in May 2020. Comcast (CMCSA)-owned NBCUniversal followed in July with Peacock. Discovery (DISCA) debuted its Discovery+ service on Jan. 4. ViacomCBS (VIAC) launched Paramount+ on March 4.
Netflix Dominates 2021 Awards Season
This year, Netflix racked up nominations and wins for film and television awards for its original programs.
Netflix won the most awards of any studio at the 93rd Academy Awards on April 25. It picked up seven Oscars, but it came up empty in the best picture and acting categories. Netflix headed into the ceremony with 36 nominations, far more than any other studio.
Netflix also garnered the most awards of any studio or network at the 26th annual Critics Choice Awards on March 7. It won 14 awards for productions such as “The Crown,” “The Queen’s Gambit” and “Ma Rainey’s Black Bottom.”
Netflix also received the most awards of any company at the 78th Golden Globe Awards on Feb. 28. It took home 10 awards for shows and movies including “The Crown,” “The Trial of the Chicago 7” and “The Queen’s Gambit.” The Golden Globes are handed out by the Hollywood Foreign Press Association.
At this year’s Producers Guild Awards on March 24, Netflix won awards for episodic TV drama (“The Crown”), limited series (“The Queen’s Gambit”) and documentary film (“My Octopus Teacher”).
Netflix took the top prize at the 27th Screen Actors Guild Awards on April 4 for its movie “The Trial of the Chicago 7.” It also won awards for TV shows “The Queen’s Gambit,” “Ozark” and “The Crown.” Netflix took home seven awards at this year’s SAG Awards.
News about its awards provided a modest lift for Netflix stock amid the recent tech stock sell-off.
Netflix Stock Technical Analysis
Netflix stock is trading below its 50-day and 200-day moving average lines, a negative sign. NFLX stock ended the regular session May 18 at 486.28.
It has a poor IBD Relative Strength Rating of 16 out of 99. The rating shows how a stock’s price performance stacks up against all other stocks over the last 52 weeks.
Moreover, NFLX stock has an IBD Accumulation/Distribution Rating of D+, indicating institutional selling of shares.
Netflix stock has a lackluster IBD Composite Rating of 66 out of 99. IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Is Netflix Stock A Buy Right Now?
NFLX stock ranks sixth out of 19 stocks in IBD’s Leisure-Movies & Related industry group, according to the IBD Stock Checkup tool. That group ranks No. 103 out of 197 industry groups that IBD tracks. Growth stock investors should focus on leading stocks in top 40 industry groups.
Be sure to keep an eye on the overall stock market. If it turns negative, don’t try to fight the general stock market direction.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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