During the current COVID-19 locks, Netflix (NASDAQ 🙂 was one of the ultimate pandemic beneficiaries, as global restrictions on staying at home have increased the need for safe indoor entertainment. In the past three months, the streaming entertainment giant's stock has not only come out of its bearish spell, but has also skyrocketed as millions of new subscribers signed up for the service, even as existing customers watched more shows and movies.
Before yesterday's session, Netflix's shares had gained about 40% this year, making it the best-performing technology stock in 2020. In that period it lost 11%. Yesterday, the stock closed at $ 452.58, a tad below its all-time high of $ 454.29 set last Friday.
The company's previous month confirmed this powerful rally when Netflix showed the strongest subscriber growth in its history, with a record 15.8 million connections. The Los Gatos, CA-based company experienced an explosive leap among customers when billions of people got stuck at the company's popular shows, such as & # 39; Tiger King & # 39; and & # 39; Love Is Blind & # 39 ;.
Despite this year's notable rally, some analysts see additional positive effects for the stock. Jefferies started Netflix coverage last week with a buy score and a $ 520 price target, pending continued double-digit growth in subscribers.
Analyst Alex Giaimo said in a letter to customers that Netflix's addressable market is vastly undervalued.
"We estimate that the addressable market will grow to more than 850 million, powered by a combination of broadband families and 'mobile only' users," he said.
"Netflix was at the forefront of multiple industry evolutions, allowing the company to maintain significant first-mover benefits (we believe the mobile-only offering could be the next step)."
Competitors in Financial Distress
Rather than focusing on these short-term reasons to buy the stock, we believe investors should re-evaluate investors for its other positive catalysts. One is that newcomers to the video streaming market will take much longer to significantly damage Netflix's leadership position if a severe and protracted recession sets in.
Major competitors Disney (NYSE 🙂 and Apple (NASDAQ 🙂 both launched their own streaming services, Disney + and Apple TV +, in November. In the future, AT & T's (NYSE 🙂 WarnerMedia division plans to launch HBO Max on May 27, and Comcast's (NASDAQ 🙂 NBCUniversal will launch its Peacock service in the United States on July 15. Introduce states.
Disney is currently one of the main competitors to Netflix, hurt by the global health crisis, which cost the House of Mouse a whopping $ 1.4 billion in lost profit last quarter because every part of its business was hit by global lockdowns.
The company's streaming company, Disney +, is the only bright spot for the world's largest entertainment company. A continued slowdown in the theme parks and other companies could damage Disney's ability to allocate money to its streaming activities.
A potential risk to Netflix, cited by management, is the post-pandemic delay of subscriptions, possibly due to customers dropping their connections as soon as they are out of quarantine.
"As with other home entertainment services, we are seeing a temporary increase in viewership and membership growth," the company said in a letter to investors. "We expect viewership to drop and membership to slow down as house confinement ends."
Netflix predicts 7.5 million new subscribers in the second quarter – still strong growth under normal conditions, but much lower than in the last quarter.
Bottom Line
Looking beyond the current health crisis, there are good reasons to believe that Netflix has more growth potential. The company's massive investment in content, the company's global distribution ecosystem, along with its growing scale and technological advantage, are some of the factors that will continue to support a bullish case for the stock.
