Netflix [NASDAQ:NFLX]: Netflix is one of the stocks that investors are putting the spotlight on today. The company is expected to release its earnings, and there are mixed reactions about it. That’s because, though the company’s subscriber numbers are growing, it is facing intense competition. For instance, Disney is expected to launch its streaming business in November this year, and will pull its content from Netflix and other streaming services.
This could put competitive pressure on Netflix due to Disney’s strong brands such as Marvel and Pixar. Nonetheless, Netflix has strong content original content, and with its higher fees, is likely to make more per subscriber, hence adding to the bottom-line. As such, Netflix earnings are likely to have a strong showing today.
Looking at the stock’s technicals, it is trading at a key resistance level. The stock is currently trading at $348, slightly below the 3 month 50-day moving average at $360.93. If the results show significant growth in earnings, buying momentum could see its value break past this resistance. However, if it doesn’t meet expectations, then it could possibly retrace, though due to the positive momentum in the entire market, the company is likely to keep recording positive numbers.
That’s because, the company has a positive beta of 1.35, which means that as long as the NASDAQ keeps recording growth, Netflix is likely to grow too. Besides, the company has a healthy profit margin and with higher prices and growing subscriber numbers, the margins will get better. At the moment, the company’s profit margins stand at 7%, which is a healthy and will give Netflix sustainable growth going into the foreseeable future. More importantly, the company has a high levered free capital, which means it can sustain investments in a competitive environment, without having to rely on debt.
These strong fundamentals are reflecting in analyst expectations about this stock. Analysts rank it a buy with an average target of $381.79. Several analysts have upgraded the company’s expectations to the positive too. For instance UBS has upgraded Netflix from neutral to buy, Raymond James from Outperform to Strong buy, and Buckingham from underperform to buy. This all indicates the strong fundamentals that Netflix has in the market.
As long as Netflix continues airing superior original content, it has a good chance of outperforming the market. Disney may be pulling its content, but Netflix has already established itself in the streaming business, and has the money to compete effectively in the streaming business. It’s strong brand position globally also gives it the leeway to increase prices without negatively affecting its subscriber numbers.
In essence, Netflix remains a stock to keep an eye on both in the short-term and in the long-run. In the short-term, a positive earnings report could push up the price. In the long-run, focus should be on its ability to maintain a competitive edge even as it faces increasingly stiffer competition in the market.