Reports Q3 2020 results on Tuesday, October 20, after market close
Expected Revenue: $ 6.37 billion
EPS Forecast: $ 2.12
Netflix (NASDAQ 🙂 has little room to disappoint investors when it reports its final earnings tomorrow. The stock is up over 60% this year and has become one of the best trades as people indulge in binge-watching their streaming apps.
Although Netflix has successfully attracted more viewers since March when COVID-19 spread worldwide, this explosive growth is unlikely to continue forever. Netflix added 10.1 million paying customers worldwide during the period ending in June, more than the average estimate of 8.3 million analysts.
But many of those new users are people who would have joined Netflix later had it not been for the virus, making the outlook for the next few quarters less impressive. The company forecasts just 2.5 million new subscribers for the third quarter, indicating that the pandemic-induced boom may be over.
Despite management's conservative guidance, investors have remained optimistic about Netflix. What makes them excited about this stock is the size of the company and the weakening financial position of its new competitors after the pandemic-induced recession.
First-Mover Advantage
Some analysts believe it will be difficult to dispute Netflix's first-mover advantage and appeal in a market with mostly mediocre offers. The company's most feared competitors, such as Walt Disney Company (NYSE 🙂 and AT&T (NYSE :), are struggling as their financial position is under severe pressure from the pandemic.
Goldman Sachs, while pushing its $ 670 12 price target of $ 600, said in a recent note that Netflix could produce a strong Q3 report tomorrow.
“We expect Netflix to report third quarter results well above expectations and consensus expectations, with approximately 6 million net subscriber growth driven by the growth of content on the platform, a lack of competition for hours and entertainment spending, and more time spent at home, possibly offset by churn levels modestly higher than we've seen in the past two quarters. "
For others, Netflix is ??a stock to hold on to for the long haul, given the company's growing international reach, where any meaningful competition is still far behind.
“Despite increasing competition, Netflix continues to bring in a significant portion of dollars in content consumption. In addition, with the fear of COVID-19 driving consumers away from travel and out-of-the-home entertainment, we want Netflix to continue to capitalize on this changed behavior, ”Piper Sandler said in a note last week.
Bottom Line
Thanks to Netflix's 'stay-at-home' appeal, it was one of the best megacaps and tech stocks to be a to take a position of uncertainty. Tomorrow's earnings report should demonstrate that these profits are sustainable and the company further strengthens its lead. That said, the growth in subscriber numbers and the company's forecast for this year will be the main factors in that report and should help explain whether the current stock gains have more upside potential.
