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Netflix: the hottest stock of the week
2021-03-18 • Updated
Do you pay $ to watch your favorite series and movies on Netflix? More than 195 million people all over the world do. The stay-at-home regime made the streaming service as popular as ever: what can people do when cinemas and theaters are closed? Subscribe to Netflix and watch “Tiger king”, “The Umbrella Academy”, “The Queen’s Gambit”, or something else out of 19 400 titles, of course!
On January 19, the streaming TV giant will release its earnings report. This is a perfect opportunity if you want not only to pay for Netflix, but rather make money on it. Read the information below to discover how to profit from Netflix’s earnings report.
What are the forecasts?
According to the consensus forecast (average of multiple estimates), the company’s fourth-quarter earnings will equal $1.38 per share (EPS). That would mean 6.2% growth from the year-ago quarter’s reported figure. The estimate of Netflix itself is a bit more modest: $1.35 per share. As for revenues, it’s expected that the firm got $6.60 billion in the last three months of 2020 (20.8% annual growth).
Let’s look at the chart. The active growth, which had started at the end of 2019, came to an end in July 2020 (the time when lockdowns were lifted and people started to go out more). Since then, the price has been trading within a sideways range between roughtly $570 and $470. In recent weeks, bears pulled the stock closer to the bottom of this range. That’s actually good for buyers: as they say, it’s better to “buy low”.
So, is Netflix a buy?
As we have established earlier, Netflix is extremely popular and growing. All things equal, this shouts, “Buy!” to every trader who’s ready to hear the call. Nevertheless, things are a bit more complicated, and you need to be aware of some negative factors.
First, the company missed the consensus estimate in three of the trailing four quarters. It means that ahead of the releases, analysts had been more optimistic about the stock than they should. Second, the coronavirus vaccine is threatening to reduce the appeal of the streaming service. After all, when people get the vaccine shot, they will likely go out and cancel subscriptions in favor of other entertainment. Third, Netflix has fierce competitors: Disney, Apple, and Amazon.
It’s necessary to remember though, that traders won’t look just at EPS and revenues. Other factors which will excite everyone are: subscriber growth in the fourth quarter (the bigger, the better) and the amount of spending on content (the lower, the better for the price). Netflix is expected to add 6 million new subscribers in the fourth quarter after adding only 2.2 million in the Q3.
If the media giant beats subscriber, revenue, and earnings expectations, it will mean that Netflix is still doing well and has remarkable potential. The price will head to $560. Then it will get a chance to break above the top of the range and resume the long-term uptrend. Still, if EPS and revenues disappoint, the price has where to fall: to September and November lows at $465. The good thing is that by trading Netflix CDF, you can profit from both the advance and the decline of Netflix stock, there’s no difference.
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