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Netflix [NFLX] share price: will Q1 earnings results see the stock break out?

After a lacklustre 2018, Netflix [NFLX] saw a 52% jump in its share price between 24 December and 15 January. Since then the stock has been treading water, trading in the $322 to $378 range with little for investors to get excited about.

But could the streaming giant's first-quarter 2019 results inspire a break out? Here are the five growth factors that suggest this could be on the cards.Netflix 1-year share price performance, CMC Markets, as at 15 April 2019

 

1. Higher subscription costs

In January, Netflix upped the cost of its basic plan by $1 and its premium plan by $2. Seeing as Netflix is nearing 140 million subscribers, even a small increase should be enough for a significant bump in overall revenue.

The concern is that increased costs will see a drop off in subscribers. Yet, Piper Jaffray analyst Michael Olson doesn't think this will be a problem:

“Our analysis ... points to a strong [first quarter], with potential upside for both [international] and domestic subs.”

Netflix itself believes that the number of subscribers will top 148.16 million this year. 

Olson has a $440 price target for the stock, which would represent a 21% upside on the current share price.

 

2. Cost of original content

2018 saw Netflix pile on the debt as it pumped $8 billion into producing its own original content. Premium titles like The Crown cost $130 million a season and the expansion into film hasn't been cheap either.

 

Market cap$153.31bn
PE ratio (TTM)131.02
EPS (TTM)2.68
Profit Margin7.67%

Netflix stock vitals, Yahoo finance, as at 15 April 2019

 

Netflix justified increasing subscription costs so it could keep producing the content its subscribers want. Sandra Bullock vehicle Birdbox, for example, has been streamed over 80 million times. Investors will hope this investment in its own content will translate into higher revenues when earnings are announced.

 

3. Expansion into India

Netflix has targeted India to grow subscriber numbers, upping local original content such as noir drama Delhi Crime. Netflix’s package, however, comes in at 500 rupees a month, substantially more expensive than Amazon Prime’s 129 rupees and Hotstar's 199 rupees.

Hotstar is undoubtedly Netflix's toughest competition in the Indian market. The Disney-owned service already has 300 million active monthly users. Netflix has 139 million subscribers globally.

But, it's a fight worth having. India has 500 million internet users and investors will be keen to see if Netflix has managed to increase market share in the country. The company’s CEO Reed Hastings has been bullish on the subject, predicting the company's next 100 million subscribers will come from India.

300million

Hotstar's monthly active users

 

4. Oscar gold paying off

Netflix is currently engaged in a charm offensive to boast its credibility among the Hollywood A-list. The latest phase sees it in negotiations to buy Sid Grauman’s iconic Egyptian theatre in Hollywood. The idea is that the cinema will provide a venue for the company to premiere its own productions as it continues its strategy to move into prestige filmmaking.

This strategy got some vindication when Roma bagged three Oscars in February. Whether the award recognition seen early this year makes a difference to subscriber numbers will be worth noting when the results drop.

 

5. Threat from Disney+

Netflix suffered a 4% drop in share price the day Disney [DIS] announced its streaming service and pricing. This saw $7 billion wiped off the company's worth as investors weighed up the threat to Netflix's dominance.

$7bn

Amount wiped off Netflix market value due to Disney+ announcement

Disney+ will give subscribers access to a back catalogue that includes Marvel, Star Wars and Disney. At launch, it will offer original content in the shape of a new Star Wars series and spin-offs from the Marvel universe. It is also cheaper than Netflix, coming in at $6.99 a month.

Whether this upcoming threat has dented Netflix’s results this quarter will be up for debate. According to analysts, most subscribers are happy to sign up for more than one service. Disney+ will be targeting a more family-friendly audience so the two services should, in theory, be able to co-exist.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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