Netflix Stock Prediction: Global Expansion in Sight to Create Fundamental Growth

The article was written by David Shabotinsky, a Financial Analyst at I Know First, and enrolled at an undergraduate Finance program at the Interdisciplinary Center, Herzliya. 

Netflix Stock Prediction


  • Fundamentally Netflix is set in a good position to still be able to please investors
  • Netflix has begun to reap fruit from its high global expansion costs
  • Domestic Market is not yet saturated and Global Growth is still eminent
  • Netflix is still able to grow globally
  • The I Know First Algorithm maintains a bullish forecast on NFLX


Netflix (NFLX), the online streaming site that everyone around the world has come to know, biggest strength lies in its established user-friendly brand name and its large library content.Although their margins sunk during Q1 2016 to 1.41% from 2.37% during Q4 2015; this was largely due to their expansion expense of about $4.1 billion, while revenue barely grew.However, Q2 showed the beginning of a turnaround for Netflix, as they saw an increase in both their top and bottom line.

Positive View of Fundamentals:

They had posted EPS at $0.09, beating analysts Consensus by seven cents. They had also seen large increase in revenues of 28%, to $2.1 billion. Together this translate into an increase in their net margins to 1.94%, and a net income of $40.78 million.

Below is Netflix’s Net Margin:

Netflix Stock Prediction

Although this is way below the industry average, that is somewhere between 10%-20%, the increase in their net margins shows improvement in their profitability as well as positive results from their global expansion. This as a result shows a change in the negative margin trend.

They thus have a large amount of room to grow, in order to please investors. They have many routes in order to increase those margins.

Although they can simply focus on a wealthier target niche, and charge a higher premium; this would be overly short-sighted, as they are set to be finishing their global expansion and main technological improvement this year, mainly with their video distribution framework cost. Furthermore, they have already had a price hike of $2.00, subscription plan, which had hurt their grandfathered and more rural subscribers.

Therefore, a smarter more long-term strategy is to continue their operations as they are.

Market Growth Development:

The reason being is due to a possible growth in both the domestic (US) and international markets.

Although many investors believe that the market is mainly saturated in the US, they overlook a crucial fact about the younger generation and millennials still living at home. This is as well explained by the increased bullish outlook of NFLX by William Blair. There millions of young Netflix users, who do not pay for their account usage, i.e. under their parents account. Therefore, by 2020 is set to be able to achieve their domestic viewer increase by millions of viewers, about 5.3 million as explained, taking 3% (conservative estimate) of the set 70 million millennials who are estimated to be in the target audience.

The further increase of more original content development as well brings on more long-term value creation. Since they can increase their margins past licensing agreements to more cost efficient self-development of original content. In the short term, they will, however, having a higher cash burn rate, which was seen in Q1 2016, as well as partly in Q2 2016.

For an investor seeking value investment, this is a critical factor that cannot be overlooked, because historically the value of revenue growth from the young is often overlooked.

Netflix_areaIn addition to domestic growth, there is a much more current growth expected from the international market. This year alone, Netflix expects their subscriber audience to grow by 38% from the international sphere, as well as about 2.8 million of those coming from new markets launched in 2016. Although their revenue does not match their costs of around 42% in 2016, as described by analysts, those costs are expected to be stable or even diminish as they expect the completion of their expansion costs. Thus Revenue will be able to increase the margins, to a more positive light. Revenues by 2020, globally are expected to reach $13 billion, with a larger portion coming from abroad. Both the growth of the domestic market and international market, as well as finishing of development will allow for Netflix to begin having positive free cash flows.

Although NFLX shares are priced on the expensive side, with forwarding P/E at 330, if they will be able to continue expanding their profit margins this can be highly reduced, and even cut in half if they reach the profit margins of the industry range.


The charge for Netflix now is to maintain (or hopefully reduce) cost level, while continue to reap their revenue growth from abroad. They can, in fact, achieve this through their new technological efforts, continual expansion of more original content, shown to have higher approval ratings than regular licensed movies/shows, and new content tailored to local markets. The competition domestically mainly revolves Amazon and their own Prime Video service, as well as HBO. While abroad include numerous other rivals similar to Amazon, such as Canada’s Shomi and Southeast Asia’s iflix.

Most importantly, for both value and fundamental investors, real revenue growth (above expenses), is known to be one the most important factor to appropriately value a firm and be able to justify reasoning for a firm to be considered a “great investment” in long term.


Netflix (NFLX) is up more than 14% since June 28, showing correct predictability of the last bullish article written by an I Know First analyst. Currently, the Algorithm maintains a bullish stance on NFLX, as described below.

Netflix Stock Prediction

Past I Know First Forecast Successes with NFLX:

I Know First has been bullish on MU in the past, as shown below. In past forecasts, such as the one dated on January 20, 2016, the I Know First algorithm correctly predicted an increase NFLX in a 1 year time period. The return on NFLX during the forecasted period the highest in the package, at 148.05%, providing an investors a 153.24% premium over the SP500’s return of -5.19%, during the same period. NFLX had a signal strength of 138.73, and a predictability indicator of 0.49. This forecast was apart of the Risk-Conscious package, and the algorithm had predicted 7 out 10 stocks correctly, for the long position, and predicted correctly 100% of the stocks, for the short position. The overall average return was 39.17%, for the long position, and 28.98%, for the short position.

Netflix Stock Prediction

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence. 

This bullish forecast for NFLX was sent to current I Know First subscribers on January 12, 2016.