Earnings

Will Netflix’s share price run higher on Q1 earnings?

Netflix's [NFLX] share price hit an all-time high of $439.17 on Thursday 16 April, making the stock one of the strongest gainers for the first quarter of 2020.

The streaming company has prospered while the COVID-19 outbreak continues to keep people confined to their homes, growing its share price by over 28% in the year-to-date. It briefly surpassed veteran entertainment giant’s — and competitor’s — Disney’s [DIS] market cap valuation last week, with Netflix’s value now standing at $185.6bn compared to Disney’s $192.5bn.

 

 

 

As the streamer prepares to report Q1 earnings on 21 April, is it possible that its share price could travel even higher?

 

Subscriber numbers to exceed expectations

Netflix previously forecast that it would add 7 million total paid subscribers worldwide in the first quarter of 2020. With recent events considered, many analysts expect this number to be far higher when it reports on Tuesday.

Pivotal Research Group now expect Netflix to add 8.45 million new subscribers in Q1. The prediction came from the firm’s analyst Jeffrey Wlodarczak, who raised the streamer’s share price target from $425 to $490 per share.

8.45million

Expected new subscribers in Q1

  

“We believe the unfortunate COVID-19 situation is cementing NFLX’s global [direct-to-consumer] dominance partly driven by the incremental content spend that is enabled by their massive and growing subscriber base,” he said in a note.

Elsewhere, Cowen & Co. expects Netflix to achieve 7.1 million net new subscribers. The firm also raised Netflix’s share price target from $425 to $445 per share.

“We expect a strong [quarter] driven by a solid slate of originals coupled with a captive audience due to the COVID-19 pandemic,” lead analyst John Blackledge said in a note on 15 April.

“We expect a strong [quarter] driven by a solid slate of originals coupled with a captive audience due to the COVID-19 pandemic” - Cowen & Co. lead analyst John Blackledge

 

Such strong figures are likely to drive the share price higher when Netflix reports, as the media company derives the majority of its revenue from subscribers, rather than marketing or parks and resorts like other similar businesses.

 

App downloads go gangbusters in March

For an indication of the type of growth Netflix has been experiencing in the past three months, it’s worth looking at current app download data.

Research firm Evercore ISI revealed on Sunday (12 April) that global downloads of Netflix apps rose 57% year-on-year in March 2020, its fastest in nearly four years. International downloads, meanwhile, rose 21% year-on-year in the first quarter.

“This data set alone suggests that Netflix is pacing towards about 8.5 million international paid net additions (vs. guidance for 7 million global net adds),” Evercore said in a note.

“After a sluggish start to 2020, Netflix's global download growth has gone gangbusters in March, as consumers sheltering in place globally are likely consuming content at an unprecedented pace.”

“After a sluggish start to 2020, Netflix's global download growth has gone gangbusters in March, as consumers sheltering in place globally are likely consuming content at an unprecedented pace” - Evercore

 

Some are also interpreting recent strong preliminary results from Roku [ROKU] as a sign of what’s to come for Netflix. Rick Munarriz said that Roku’s 14 April announcement highlighted how engaged viewers are at the moment, writing in the Motley Fool. The streaming firm’s audience has grown 37% over the past year, while its 40 million users watched 13.2 billion hours of content in the first three months of the year — 49% more than in the year-ago period.

“Strength in Roku's ecosystem may not always translate into a boost for Netflix, but right now — with Netflix as both the king and the King Midas of content — Roku's blowout news [on 14 April] should translate into Netflix coming through with blowout news,” Munarriz considered.

These statistics suggest Netflix will deliver an overwhelmingly positive report, possibly increasing its share price as a result.

 

Should traders buy Netflixs share price at record levels?

Netflix is undoubtedly a pricey share price at present, selling at 10 time its sales, according to Bloombergs John Authers. Long-term problems with the stock remain, as an increasing number of competitors enter the market and put strain on the streamer – which is already borrowing heavily. Authers even questions whether it is time to short the share price.

Such considerations are valid – but investors can perhaps wait to act on them. In the short-term, many believe that Netflix will keep growing through a recession, which could make it a solid buy for the more immediate future.

“In the wake of the novel coronavirus outbreak and the resulting recession, Netflix should benefit from strong, positive catalysts. As a result, investors should buy NFLX stock at its current levels,” says Larry Ramer in InvestorPlace.

“In the wake of the novel coronavirus outbreak and the resulting recession, Netflix should benefit from strong, positive catalysts. As a result, investors should buy NFLX stock at its current levels” - Larry Ramer

 

One of these catalysts is that many will consider stopping their pricier TV subscriptions during a recession, making room for more subscribers and viewers to head to Netflix. A recession is also likely to keep more people at home and exploring the streaming offers available at the moment, according to Ramer.

On Tuesday, analysts surveyed by FactSet reckon the company is to report earnings of $1.61 a share for the first three months of the year. It’s also expected to report a revenue of $5.73bn, while adding 7.8 million net new paying subscribers globally.

These optimistic figures have led to a slew of firms reiterating their buy ratings on the share price, including Canaccord Genuity, which last week raised its share price target from $415 to $450 earlier this week.

 

Market Cap$189.883bn
PE ratio (TTM)104.78
EPS (TTM)4.13
Quarterly Revenue Growth (YoY)30.60%

Netflix share price vitals, Yahoo Finance, 20 April 2020

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