Is There an Upside in NFLX Stock?
With the stock market sell-off continuing, the hottest tech stocks of yesteryear are in the penalty box. Netflix, Inc. (NASDAQ:NFLX) happens to be one of them. Over the past six months, NFLX stock plunged nearly 40%, but things could be looking up.
The blunt reality is, when a market crashes, investors tend to first sell the stocks that went up a lot. And since tech stocks were some of the biggest gainers in the previous rally, they were hit particularly hard when things went south.
Note, however, that the previous rally in Netflix stock was so strong that long-term investors are still in the green. Over the past 12 months, the stock returned an impressive 32%. Over the last five years, shares of this on-demand video streaming giant went up a staggering 380%.
The big question, of course, is whether the company still deserves investor attention.
I believe the answer is yes.
Netflix, Inc. Is Still a Growth Machine
The bears can say what they want, but they can’t deny the fact that Netflix is an absolute growth machine.
Before looking at the numbers, I want to emphasize that the company is no longer a startup. Netflix is one of the biggest providers of on-demand video streaming today. It has more than 130.0 million paid subscribers around the world and commands a market capitalization of about $115.0 billion.
And yet, despite being an established player in the industry, Netflix is still growing like a startup. In the third quarter of 2018, the company generated $3.9 billion in streaming revenue, a 36% year-over-year increase. Total revenue arrived at almost $4.0 billion, up 34% from the year-ago period. (Source: “Letter to Shareholders,” Netflix, Inc., October 16, 2018.)
Bottom-line results were even better. For the quarter, Netflix’s earnings came in at $0.89 per diluted share, a massive improvement compared to the $0.29 per share earned a year earlier. It easily beat Wall Street’s expectation of $0.68 per share.
Most importantly, the company is still expanding its user base. In the third quarter, Netflix added almost 6.1 million paid subscribers. This brought the streaming company’s total paid membership count to 130.4 million. (Source: Ibid.)
Thanks to these solid growth numbers, Netflix stock surged as much as 15% after its third-quarter earnings report.
What NFLX Stock Investors Can Expect in 2019
The reason why investors are attracted to tech stocks is their growth potential. So it shouldn’t come as a surprise that, as Netflix delivered solid top- and bottom-line growth quarter after quarter, its shares soared.
Netflix is scheduled to report its fourth-quarter 2018 earnings on January 17 after the closing bell. How these numbers turn out compared to expectations could determine the direction of NFLX stock’s first big move in 2019.
As always, subscriber growth will be a key focus. For the fourth quarter, management expects the company to achieve 7.6 million in net paid subscriber additions.
As for financials, Wall Street analysts expect Netflix to earn a net income of $0.24 per share on $4.2 billion of revenue. (Source: “Netflix, Inc. (NFLX),” Yahoo! Finance, last accessed January 2, 2019.)
Keep in mind that, in the past 12 months, the company has beaten or matched analysts’ earnings per share estimates in all four quarters.
If Netflix manages to beat Wall Street’s revenue and earnings expectations—and the company outperforms its own forecast of subscriber additions—that would be a good reason for investors to warm up to NFLX stock.
Don’t forget, past performance does not guarantee future results. While Netflix stock has done well due to the company’s growing financials and user base, how its share price will perform in 2019 also depends on market sentiment.
As I’m writing this story, almost every hot tech stock is deep in the red. If the bearish sentiment toward the tech sector persists, it could continue to put downward pressure on NFLX stock.
Still, remember what legendary investor Warren Buffett once said: “Be fearful when others are greedy and greedy when others are fearful.”
A bullish bet on Netflix in this market pullback could be rewarding.