Should I Buy Netflix Stock Right Now?
Updated: Jul 16, 2020
Netflix (NASDAQ: NFLX)
· Consensus EPS Estimate for Q2 2020 is $1.83
· Consensus Revenue Estimate for Q2 2020 is $6.08B
· EPS Revisions the past 90 days include 26 upward and 2 downward
Netflix is set to report its Q2 earnings on Thursday, July 16 after the market close. Consensus estimates are looking for EPS of $1.83, up from $0.60 in Q2 2019. The revenue estimate of $6.08B, up 23.5% year over year, considers not only the growth in membership but also the gain from pricing increases in various regions driving the average revenue per user "ARPU" over the period. The current market estimates are slightly ahead of management's internal quarterly guidance laid out from the Q1 earnings report targeting a similar EPS of $1.81 and revenue growth of 22.8% year over year.
There's little doubt that Netflix has been among the clear winners of the ongoing stay-at-home economy: The stock is up an impressive 70% so far this year. To put that into context, the Dow Jones Industrial Average is down about 7%, the S&P 500 sits near breakeven, and the NASDAQ Composite has gained about 20%.
Netflix is almost essential during a pandemic
First, Netflix has over 182 million paying members worldwide, and the resurgence of COVID-19 in some states and countries makes it more likely that it will continue adding millions more. Second, the company has the potential for price increases on its massive base of viewers. Third, because of the outbreak, there is an industrywide slowdown in content creation.
The company is slated to report its second-quarter results on Thursday. Management expects to have added 7.5 million subscribers when it announces its results. It will not be surprising if it reaches 200 million paying customers by the end of 2020. And even beyond the impacts of COVID-19, the long-running trend of consumers shifting from linear television to streaming is an undercurrent helping Netflix reach higher subscriber numbers. (Parkev Tatevosian(TMFParkev)
What this means for investors
The coronavirus pandemic is wreaking havoc around the world, and it appears as though people will be staying home for longer than expected. Enter Netflix, with its many binge-worthy programs and reliable service, to entertain society in this most challenging time.
Admittedly, some customers who signed up during the pandemic may cancel when there is a return to normalcy. However, given Netflix's high customer retention percentage, investors can feel confident that the company will maintain its viewership. Finally, even though its share price exploded during the pandemic, it is still trading at a price-to-sales ratio under 11, which is below its mid-2018 peak of 12.7. (Parkev Tatevosian(TMFParkev)
Pineapple Stocks Recommendation 🍍
We are leaning bullish into earnings and predict the earnings reaction will most likely be flat to bullish. The ideal play for this would be a vertical put credit spread or a long share, with call sell to offset any downside risk. Join our live trading group today for more information and check out our partner sweepcast.com for your options alert and activity scanner!