NFLX became even more popular during the current pandemic, when masses were locked up at homes and had limited means for entertainment. NFLX added nearly 26 million paid subscribers from across the world in the first two quarters of 2020.
With no proper vaccine developed yet and with the advent of the second wave of this novel coronavirus in major cities of the US and Europe, the future looks bright for this streaming leader.
This impressive performance and the potential upside based on a number of factors have helped NFLX earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates NFLX:
Trade Grade: A
NFLX is currently trading higher than its 50-day and 200-day moving averages of $504.78 and $433.32, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 27% returns over the past six months reflects a solid short-term bullishness.
NFLX’s revenue increased 24.9% year-over-year to $6.14 billion in the second quarter ended June 2020. Its EPS rose 165% year-over-year to $1.59. With the robust growth in the digital entertainment platform, the stock gained 67.5% year-to-date. With free cash of $899.08 million, NFLX is sufficiently cash rich and can go ahead with its future expansion plans smoothly.
Other than creating unique original content, NFLX has become an active player in acquiring new content. In September, at Toronto International Film Festival, the company acquired three high-profile films. Additionally, the company has invested in providing theatrical exposure to its original movies.
On October 13th, NFLX removed the option of a 30-day free trial for potential subscribers in the United States. To replace the free trial, Netflix will be introducing new ways to try and attract potential subscribers, including posting some educational content on YouTube for free and other forms of content sampling. Recently, the company launched a portal to watch a number of episodes from its top series for free. Netflix also made one of its films available to watch without a Netflix subscription.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, NFLX is well positioned. The stock is currently trading just about 5% below its 52-week high of $575.37.
NFLX has gained 171.7% over the past three years, which can be attributed to its robust subscriber and revenue growth. The company’s revenue grew at CAGR of 30.5% over the past three years, while EBITDA rose at a CAGR of 76.2% over this period. The company’s EPS grew at CAGR 93.1% over the past three years.
Peer Grade: B
SE and SNAP beat NFLX by gaining 317.1%, and 69.8% year-to-date, respectively, while TWTR returned 42.1%. However, NFLX with its bright future prospects, brand loyalty among the viewers, the ever-increasing memberships and its diversified portfolio of original series could gain enough momentum in the upcoming months.
Industry Rank: B
NFLX is part of the StockNews.com Internet industry, which is ranked #4 out of the 123 industries.
From online schooling to doing office work from home, 2020 has witnessed a monumental increase in online and digital activities globally. According to Statista research expert J. Clement, data usage in the US increased 18% year-over-year in the first few weeks of March. Average daily data usage crossed 16.60 GB during this period. With the coronavirus crisis deepening every day and no effective vaccine available, the stay at home culture is here to stay. This should feed into the growth of the Internet industry as a whole.
Overall POWR Rating: A (Strong Buy)
NFLX is rated a “Strong Buy” due to its impressive past performance, short-and-long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.
With its innovative and diverse portfolio of original series, a solid membership base, strong brand loyalty, and strong revenue growth, NFLX is expected to continue moving higher in 2021. NFLX should see a further rise in global subscribers as it continues to expand into other international regions.
NFLX has an average broker rating of 1.55, indicating favorable analyst sentiment. Out of 46 Wall Street analysts that rated the stock, 22 rated it “Strong Buy” . Analysts expect NFLX’s EPS for the third quarter and current year 2020 to grow 44.9% and 50.4%, respectively.
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NFLX shares were trading at $543.53 per share on Friday afternoon, up $1.59 (+0.29%). Year-to-date, NFLX has gained 67.98%, versus a 10.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Madhavi Taneja
Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service. More...
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