To buy or not to buy? That is right now the dilemma of many an investor as Shares of Netflix NFLX on Wednesday morning climbed following yet another significant upgrade. “More upside for the new king of all media”, declared Bank of America analysts. And what a claim! Apparently, Netflix is poised to continue the high climb. So is now the right time to buy? Let’s consider some quick facts.
First, let’s consider what analysts say
Only two days earlier, on Monday 25th, Netflix stock, for the first time since July 2016, suffered its biggest one-day downturn following a significant tech selloff. Its stock has since, mostly recovered from that not so fundamental slip. Wednesday’s gains only come due to the reiteration of their ‘buy” rating and upping of their price target to $460 from $352 by Bank of America analysts. It is a target price that, against Tuesdays $399.39 per share closing price represents about 15% premium
Analyst Nat Schindler writing on Wednesday, in a note to clients reiterated: “We think Netflix can become the dominant streaming player in virtually all markets given its content scale, despite varying levels of competition, regulation, and economic conditions in each market.” According to the analyst, strong execution as well as favorable secular trends, following the global transition toward internet video will continue to benefit Netflix, including strong demand for premium content.
In addition Netflix’s subscriber base is also projected to increase by roughly 8% by the year 2030. Is 8% little? Well, on the surface yes, but given Netflix closed its first quarter with as many as 125 million members, It is likely, the analyst predicts, that 12 years forward, the streaming Giant could hit a staggering 360 million subscribers.
Netflix, the analyst observed, continues building its original content library. As competition increases, that will be Netflix’s important asset. According to the analysts, an original content library that is strong supports pricing power for the longer term.
Now the fundamentals involved
That said, how vital is original programming for Netflix? It is important to recognize that Netflix realized that it was significantly influencing the manner in which content was consumed by people some few years ago, and accordingly anticipated a transition to streaming. That explains why it (Netflix) has so far spent billions of dollars on original content, and in deed plans to continue spending!
Obviously to fend off competition now coming from Amazon, HBO, AMZN and others of the like, Netflix knows and is working to remain the most attractive streaming provider available.
Other entertainment provider powerhouses meanwhile are also undertaking sustained expansion efforts. Disney Dis set in particular is gearing up to launch its own streaming services some time later next year (2019). This means it will pull off its content from Netflix, in a move likely to be followed by others.
Taking a leaf from HBO which has become a powerhouse based on major hit shows such as the on-going Games of thrones and Content worth paying for, Netflix now plans to churn out big-budget movies as well as TV shows, including indie-type projects (smaller one, that is) in perpetuity since, going forward, that so far seems the only attraction for investors and customers.
Growth
In the first quarter, Netflix added new members totaling to 7.41 million. This is a massive 50% increase from a year-ago period. Indeed, it surpassed Netflix’s forecast of 6.35 million, and brings the company’s total to as many as 125 million, well over 2017’s 17 million paid subscriber base that was reported by Hulu.
Now as the second quarter approaches, Netflix is expecting an addition of 6.2 million more new members, as well as more subscribers. This only implies that Netflix has a bigger sway on TV cultural conversations these days, including pricing power.
And not only that, Netflix’s user base and expanding ability, over the last year led to its stock price skyrocketing a staggering 164% and by roughly 110% since the year 2018 started. This effectively makes Netflix one of the top performers of S&P 500.
Quick Outlook
Merrill Lynch of bank of America is clearly convinced that the stock of Netflix has high targets to surpass. And many other Wall Street firms agree, and indeed, see an even higher upside than she predicts.
For example, Imperial Capital only recently initiated NFLX coverage with a $503 price target. It came after GBH Insights hiked price to $500 from $400. According to FcatSet, GBH at that time had its updated price target marked as the highest from the 36 analysts that cover Netflix. It came much less than a week from when Goldman Sachs GS lifted its own target to $490 from $390.
Netflix is also expected to register its top and bottom lines’ surge this year of 2018. Zacks Consensus Estimates are indeed, currently calling it’s second quarter (Q2) revenues, in order to reach $3.94 billion, to surge by 41.29%, meanwhile its revenues for the full year are projected to rise by 38% and indeed reach $16.13 billion.
Netflix’s income statement meanwhile adjusted its second quarter earnings to peak 433% from $0.15 per share to $0.80 per share. It expects its earnings, for the full-year, to climb by 130% and reach $2.88 per share.
Decision time
Our question at the beginning was: To buy or not to buy? We can now comfortably answer that question. And the answer is: BUY. Now looks the right time to jump on the stock of Netflix stock since,
- First, its price is set to hike,
- Secondly, its user base expected to grow,
- And three, its earnings are projected to expand.
Disclaimer: I am not any kind of financial adviser, and i do not work/write for any organization/company. These are only my thoughts compiled following my own research. You can share your own in the comments!
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