Reports Q2 2020 results on Thursday, July 16, after market closes
Yield forecast: $ 6.09 billion
EPS expectation: $ 1.82
Netflix (NASDAQ 🙂 is one of the strongest stocks of 2020. The stock increased enormously when the pandemic kept people in, increasing demand for the streaming service.
So far, Netflix shares have soared nearly 60% this year, making it one of the best performers as well, although the index itself is weaker by about 3% this year. The stock, which closed at $ 523.25 yesterday, also gained about 70% from its March low, in a rally that pushed shares to new all-time highs earlier this month.
That force will be under scrutiny tomorrow when the Los Gatos, California-based streaming giant reports its second-quarter earnings as investors seek to justify this impressive run in stocks and the sustainability of the pandemic-fueled boost.
In this regard, the company's latest profit guideline sent a mixed message, leaving some room for a negative surprise.
"As with other home entertainment services, we are seeing a temporary increase in viewership and increased membership growth," the company said in a letter to investors in late April when earnings for the first quarter were reported.
"We expect the number of viewers to decrease and the number of members to decrease as the confinement of the house ends."
By adding a record number of 15.8 million subscribers to, Netflix showed that this was the top choice for billions of people trapped in their lockdown, many of whom are binge-watching such original Netflix shows & # 39; s like "Tiger King" and "Love Is Blind" to quarantine.
All of this is, in our opinion, already fully priced in. We therefore believe that the stock's rally could pause as investors wait to see if subscribers keep their connections as countries reopen and users start living their daily lives.
Netflix's Long-Term Appeal
Some Wall Street analysts have similar views on Netflix after the impressive rally. UBS said in a letter to customers this week that while the company expects to see "a widespread benefit" from the pandemic favoring indoor entertainment options, the benefits of this trend appear to have been priced in at the current level.
"Investor fears seem to have disappeared and the current stock price is increasingly reflecting much of the long-term dynamism of the business canal," said analyst Eric Sheridan and repeated his $ 535 price target. term remains intact, "we would rather be constructive at a level that better reflects a mix of potential subscriber volatility, FCF dynamics and competition in the share price."
Despite the possibility of pausing in the current upswing, Netflix is ??a long-term share to hold, given the company's growing international reach, where any meaningful competition is still far behind. Netflix now has 182.9 million subscribers worldwide.
Its closest competitor, Disney (NYSE 🙂 – which launched its streaming service in November – is underwater after the pandemic forced the House of Mouse to shut down its theme parks, resorts, cinemas and cruises around the world, boosting its assets harmed. to aggressively spend on his new venture.
Bottom Line
Netflix & # 39; s & # 39; stay-at-home & # 39; attraction made it one of the best megacaps and tech stocks in taking a position in this uncertain time. Today's earnings report will show how sustainable this profit is and how the company translates this profit into improving its financial health.
Subscriber growth and the company's forecast for this year will be key factors in today's report and should help explain whether the current rally in its inventory is warranted.
