NFLX Stock Analysis: Netflix Growth Potential Exceeds Expectations
The article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.
NFLX Stock Analysis
- NFLX Stock Analysis – Analysts have regained enthusiasm in the company
- I Know First Algorithm Bullish Forecast For NFLX
Bullish NFLX Stock Analysis
Last month, NFLX reported their fourth quarter earnings, beating the Wall Street Journal’s predictions. In Q4, NFLX announced earnings of $0.15 per share, a $0.02 earnings surprise from WSJ predictions, as well as revenues reaching $2.48 billion. This increase is partly due to new subscribers flocking to Netflix. Just last quarter, Netflix saw record highs in growth based on subscriber count; 7.05 million new users subscribed to their monthly video service, 1.85 million more subscribers than previously expected for the quarter. In total, NFLX now has 93.8 million subscribers worldwide Retrieved from Zacks. Following the earnings report, the share price for NFLX jumped 8.4% in after hour trading Retrieved from Forbes. NFLX is known to continue on an upwards trend based on their quarterly earnings, rarely faltering. In the last five years, NFLX has only missed earnings estimates once, Q3 of 2015.
Before earnings were reported for Q4, analysts weren’t too hopeful for NFLX. Many analysts were rating NFLX stock as “underperform,” “overweight,” or “sell” and price targets for the stock ranged from $60.00 to $155 per share. This was due to a 42-week low at $79.95 per share for NFLX. More information about NFLX before Q4 earnings were reported, click here. However, analysts have since regained enthusiasm in the company as seen from the chart below.
New forecasts for upcoming Q1 of 2017 for NFLX shows that the video streaming company may boast a $0.38 earnings, more than twice the earnings of Q4. Analysts from RBC Capital Markets speculate that the price target for NFLX may reach $175 during this quarter, which is a whopping $30 rise for the quarter. Below is a chart of quarterly estimates as well as previous earnings history for NFLX.
Analyst Rob Sanderson from MKM Partners has also increased his price target for Netflix by $10. Making the target price $175 per share. This sudden and tremendous price target increase by both MKM Partners and RBC Capital Markets is due to the fact that Netflix still has a huge market to grow into. That is the international market. By 2020, Sanderson speculates that Netflix may actually grow $270 per share, if not more. Netflix plans on not just including its premium content
Retrieved from Yahoo Finance
internationally, but also plans on including content closer to home. Internationally, regional content will be added depending on where you are, making it more tailored and more attractive to new subscribers abroad. This ability to adapt to new regions gives Netflix a huge advantage over their competitors, as most of them aren’t even available abroad. It is predicted that Netflix will increase subscriber count by 115 million in the next five years internationally.
Retrieved from Sports Perspectives and Market News
Netflix has another leg up from other streaming providers in that its original shows are new, exciting, and captivating. That’s more than can be said of Amazon Video and Hulu. For example, Orange is the New Black, Stranger Things, Narcos, and A Series of Unfortunate Events are all hits that can only be found on Netflix. Their exclusivity makes them more desirable, but their production quality and plot continue to enthrall new and existing subscribers. This in itself is a powerful player in why Netflix has continually grown over the years and why it continues to lead in the streaming sector. Netflix has created its own “cult following” that will continue to grow as time passes.
On another note, Netflix is also moving into the toy business. While this may sound odd and uncharacteristic of this type of platform, it is an ingenious idea on the part of Netflix. Netflix isn’t going to begin to make standard children’s toys, they’re beginning to make merchandise for their fans. For example, Netflix has begun selling its merchandise for their hit show “Stranger Things” through Hot Topic. The hope is to increase sales while further solidifying their connection with their subscribers. Disney does this very well with their shows and movies, essentially taking a production or character and developing a business around it.
I Know First Algorithm Bullish Forecast For NFLX
I Know First currently maintains a bullish stance on NFLX with signal strength 101.72 and predictability 0.4 for the 1-year forecast.
In the past I Know First was also bullish on NFLX. This bullish forecast on NFLX was sent to current I Know First subscribers on October 12, 2016, where NFLX had a signal of 18.64 and a predictability of 0.14. NFLX showed returns of 21.16% for one year.
I Know First Algorithm Heatmap Explanation
The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.
Predictability is the actual fitness function being optimized every day and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.
Netflix has a growth potential that will increase over the next few years. There is no slowing in sight because of their new and innovative ways of creating content and other businesses around that content. Netflix competitors pale in comparison to Netflix because they don’t have the international capabilities, nor do they have the quality of production for their exclusive content. Exclusive content that creates cult followings ensures that subscribers will continue watching for years to come, however; the big win is the international sector. The growth internationally has been exponential over the last few years and now that Netflix plans to also begin including regional content, the growth will be even more aggressive than previously. Investing in NFLX may prove to be extremely lucrative in the near future as the price target is already predicted to grow to over $270 by 2020, which would almost double the current price per share.