Netflix Stock Forecast: Reaping Rewards From Expansion

  2016-09-15_18-55-38  The article was written by Jacob Saphir, a Financial Analyst at I Know First.

Netflix Stock Forecast

“The longer people watch Netflix and the longer they stay members – they’re the criteria of success for us.” Ted Sarandos

netflix stock forecast

Summary:

  • Impressive first quarter 2017 report
  • Significant investment in original content
  • I Know First bullish forecast of NFLX

Background:

Netflix, Inc. (NFLX), is the largest internet television network provider offering online streaming of films, documentaries, television programs, and original programs, such as the hit series Narcos, by Netflix.  With its headquarters in Los Gatos, California, Netflix has flourished from a DVD rental-by-mail firm from 1997 to offering viewers in over 200 countries online streaming of television contents commercial free and on demand. I Know First continues to maintain its bullish forecast as we review Netflix’s most recent quarter earnings and its investment in the future.

Financial Analysis of Q1 2017:

Netflix’s income statement has been posting new highs.  If we were to compare the first quarter of 2016 to the first quarter of 2017, there has been notable increases to reflect the stock’s performance. In the first quarter of 2017, Netflix posted a revenue of $2,637 million, compared to $1,958 million posted in the first quarter of 2016.  That is approx. a 35% increase year over year.  An increase in revenue also resulted in an impressive increase in operating income. Netflix reported an operating income of $257 million. That is over a 500% increase from its previous first quarter report of $49 million.  As a result, Netflix earned $178 million in its latest quarter report in net income.

What could contribute Netflix to post these financial improvements? In a previous I Know First article, the article explains how Netflix has been heavily investing its future in the international market. In fact, in April 2017, Netflix entered a licensing agreement with Baidu iQiyi, to allow Netflix contents to be viewed in China. This makes Netflix contents accessible to over 500 million monthly viewers. Netflix will have a distinct advantage over its competitor Amazon, whom is still facing difficulty entering the Chinese market due to regulatory concerns. Aside from Netflix’s aggressive expansion abroad, more people are deciding to cut the cords of their cable companies, in favor for online streaming. Along with growth from abroad, Netflix is investing in original contents.

Investing in Original Content:

The necessity to invest in original content is crucial for any television network, especially for Netflix.  I Know First wrote in January 11, 2017, Netflix investment in original content and increasing overall content by 50%. Competition is very tough in this industry. Shows are being replaced at a faster pace than in the past. Hence in order to retain and attract customers, television networks must present its viewers with new and popular contents. This is why Netflix recently raised $1 billion in Europe, possibly to produce future productions aimed in the European market.  Netflix is investing up to $6 billion for original content.  According to Business Insider, this is higher than Netflix’s competitor Amazon, with $4.5 billion. As Netflix recognizes there will be more subscribers abroad than domestically in the US, Netflix now features programs in over 20 languages.  This is a vast increase from only several languages 5 years ago.

netflix stock forecast

 

I Know First Bullish Forecast

Past I Know First Forecast Successes with NFLX:

In such as the one dated on September 15, 2017, the algorithm accurately forecast a signal for Netflix.  Over a eight months time span, the stock rose impressively by 60.5%, beating the S&P 500 return of 11.08%.  The market premium calculates to an astounding 79.42%.

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. This allows users 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.


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