Netflix Stock Forecast: Samsung’s Help Can Boost Netflix’s Big Lead In Paid Streaming

motek 1This Netflix stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Investors apparently agreed with my position that Netflix will continue to prosper in spite of Apple TV+ and Disney+.
  • Netflix’s stock is 40.88% higher than its closing price during my October 8 buy recommendation.
  • I still rate NFLX as a buy. The new partnership with Samsung will definitely boost Netflix’s giant lead against its streaming rivals.
  • Samsung is still the world’s no. 1 vendor of smartphones. It shipped out 295.7 million phones last year.
  • Netflix’s exclusive bonus content for Samsung Galaxy phones could add more to Netflix’s already high 167.09 million subscribers.

I was correct with my October 8 long hypothesis for Netflix (NFLX). The launch of Apple (AAPL) and Disney’s (DIS) cheaper paid streaming services in Q4 2019 failed to deter investors from pushing NFLX’s price from October 8’s $270.72 to today’s $381.40.  I repeat my bull thesis – Netflix is already too big for anyone to challenge.

NFLX Stock History
(Source: Seeking Alpha)

It is a long-tailwind for Netflix that Comcast (CMCSA) is losing subscribers. More importantly, the $15 billion/year budget for original content is largely why Netflix continues to attract new customers. Netflix Q4’s earnings report revealed Netflix still added 8.8 million new subscribers. This was in spite of t November’s global launch by Apple TV+ and Disney+.  

These rival streaming platforms did not stop Netflix from adding 420k new U.S. subscribers and 8.33 million international subscribers. Skeptics were wrong to say that Apple TV+ and Disney+ would steal subscribers away from Netflix.  NFLX’s price upsurge for the past four months is because the company’s growth story is still intact. Apple TV+ and Disney+ are not making any serious impact.  

Revenue from US and International Streaming
(Source: Netflix)

Investors should remain long NFLX because it is successfully fending off competition in the U.S. paid streaming. The U.S. market is very important to Netflix. The international streaming business is generating more revenue. However, Netflix’s contribution margin for its U.S. streaming is 30.8%.

Apple has hundreds of millions of iOS devices in the United States. Unfortunately for Apple, this is still not helping it disrupt Netflix’s U.S. operations. As per Axiom, streaming now accounts for 20% of TV time spent in the U.S. Hold on to your shares because Netflix still dominates U.S. streaming. Netflix has a 31% market share in U.S. streaming, much larger than YouTube (21%) and Disney’s Hulu (12%).

It is a good omen that Netflix’s paid streaming video service continues to beat the free-to-watch, ad-supported service of YouTube. Netflix’s quarterly revenue is now $5.4 billion. It doesn’t need ad-supported video streaming. Subscription video on demand is proving to be a better business model than ad-supported video on demand.

The high valuation ratios of NFLX is also due to its increasing profitability. The company is now mature. Netflix has enough number of paying subscribers to the point that its 3-year net income CAGR is 115.45%.

Financial comparisons between NFLX FB and AMZN
(Source: Seeking Alpha)

Why Netflix Stock Can Fly Higher

The 40.88% gain since October 8 is a compelling reason to do sell NFLX. However, NFLX is still a buy particularly now because Samsung (SSNLF) is helping Netflix recruit more subscribers. Samsung Galaxy smartphones will exclusive bonus content for Netflix subscribers. This partnership is a strong tailwind. More than 75% of video streaming is now done through mobile devices.

Netflix already touts more than 167 million subscribers. More than 106 million of those are international subscribers. Samsung’s persistent no. 1 position in global smartphone shipments could add 5 million or more new subscribers per year to Netflix. This guesstimate is reasonable. Samsung shipped more than 295 million smartphones last year.

Top 5 Smartphone Companies, Worldwide Shipments, Market Share, and Year-Over-Year Growth, 2019
(Source: IDC)

Huawei’s lack of access to Google (GOOGL) Mobile Services means Samsung will continue to lead in smartphone sales. I expect Samsung to ship out more than 300 million smartphones this year. Samsung has best-selling flagship smartphones and is very popular in the mid-range handset market. Hundreds of millions of Samsung phone owners are there all potential Netflix subscribers.

The bonus exclusive content from Netflix could attract even owners of entry-level and mid-range Samsung Galaxy phone owners located in developing countries. The ability to watch TV shows and movies not found on other cable TV or streaming platforms is a compelling reason for Samsung device owners to subscribe to Netflix’s very affordable international rates.

Netflix Streaming Is Getting More Efficient For Mobile Users

The streaming business of Netflix will also benefit from the company’s new support for AV1 video codec. Subscribers who use Android devices will appreciate AV1 video codec’s 20% better video compression. This can help them save on data charges when streaming Netflix shows.

Netflix will eventually implement AV1 for iOS devices too. The international success of Netflix is partly due to its use of Artificial Intelligence to compress video. Streaming smaller file sizes is key to growing an audience in developing countries where wireless internet speed is less than 3mbps. 

Subscribers in developed markets also appreciate Netflix’s effort to smaller video streaming files.  Wireless operators in Europe and North America have a monthly cap on cellular data. Going over the 10 to 50GB cellular data cap would result in them paying much more than their subscribed monthly cellular data plan.

Conclusion

I agree that NFLX has very high valuation ratios. This extreme optimism over Netflix can be blamed on its well-entrenched position in video streaming. Netflix, not Disney, not Apple, will remain the lead beneficiary of the fast-growing global video streaming industry. The video streaming business is growing at 19.1% CAGR. It is expected to become a $688 billion opportunity by 2024.

I am not surprised that people are telling Apple to kill its Apple TV+ service. Apple will only squander billions of dollars in its Quixotic attempt to compete with Netflix. It will be more viable for Apple to just focus on its Arcade subscription gaming service.

My buy rating for NFLX is also because of its super bullish one-year trend signal from I Know First. The stock picking AI of I Know First gave NFLX a 1-year market trend score of 580. A stock only needs to score 100 or above to receive a clear bullish signal.

NFLX Stock Forecast


Past Successful Netflix Stock Forecast

On October 6th, the algorithm of I Know First predicted a bullish stock market forecast for Netflix stock price. The stock algorithm successfully forecasted the NFLX stock movement on the 3 months time horizon. Netflix’s shares rose by 23.11% in line with the I Know First algorithm’s forecast. See chart below.

This bullish Netflix stock forecast was sent to the current I Know First subscribers on October 6th, 2019.

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