Internet television network Netflix(NFLX) has taken a commanding lead in the streaming video market and investors have bid up NFLX stock as a result. But some people might be wondering: Is Netflix stock a buy right now?
Los Gatos, Calif.-based Netflix started in 1997 as a subscription DVD-by-mail service in the U.S. That innovative service ultimately drove movie rental giant Blockbuster out of business.
In 2007, Netflix began offering a streaming video service with licensed movies and TV series. It later entered the content production business and released its first original series, "House of Cards," in February 2013.
In a January 2013 article in GQ magazine, Netflix Chief Content Officer Ted Sarandos laid out the company's original content strategy: "The goal is to become HBO faster than HBO can become us."
Netflix still offers its legacy domestic DVD-by-mail service, but no longer promotes it. The company always believed its future was in digital delivery of video entertainment. Netflix offers its ad-free, subscription video-on-demand service in over 190 countries.
Subscriber Growth Drives Netflix Story
Over the last several years, Netflix has been laser-focused on growing its global subscriber base. It wants to build a competitive moat with scale. It has been investing heavily in local-language original content production worldwide. Netflix stock performance is linked to its net subscriber additions.
Netflix ended the third quarter with 213.56 million subscribers worldwide. The U.S. and Canada accounted for 34.7% of its total subscriber base.
Stay-at-home orders during the Covid-19 pandemic drove business for Netflix and other home entertainment services. Consumers watched more television because movie theaters, live music and sports were shut down during the pandemic. But Netflix faces difficult year-over-year comparisons in 2021 as the economy reopens following the pandemic.
Even before the pandemic, Netflix stock benefited from the cord-cutting trend as people quit traditional pay-TV services.
Netflix Stock Fundamental Analysis
In the September quarter, Netflix added 4.38 million streaming subscribers, topping Wall Street's target of 3.78 million. But Netflix stock fell 2.2% in the first trading session following the news, released late Oct. 19.
For the current quarter, it forecast adding 8.5 million subscribers. Analysts had been modeling 8.41 million new subscribers in the December quarter.
Netflix earned $3.19 a share on sales of $7.48 billion in the third quarter. Analysts were looking for Netflix earnings of $2.56 a share on sales of $7.48 billion, FactSet said. On a year-over-year basis, earnings jumped 83% while sales climbed 16%.
For the current quarter, Netflix expects to earn 80 cents a share on sales of $7.71 billion. But Wall Street had predicted Netflix earnings of $1.13 a share on sales of $7.66 billion in the fourth quarter.
The next catalyst for NFLX stock likely will be its performance in the fourth quarter.
The company anticipates 2021 free cash flow at break-even, turning sustainably positive in 2022.
Netflix Content Attracts Subscribers
Since it started its original content push, Netflix has launched quite a few hit shows. They include "Stranger Things," "Money Heist," "Bridgerton" and "The Witcher."
It also has premiered popular original movies such as "Bird Box," "Extraction," "Murder Mystery," "Spenser Confidential" and "The Old Guard."
Recent buzz worthy shows on Netflix include TV series "Squid Game," "Ginny & Georgia" and "Outer Banks." Popular new original movies include "Red Notice," "Fatherhood" and "Army of the Dead."
Meanwhile, Netflix is facing competition from traditional media companies. AT&T(T)-owned WarnerMedia launched HBO Max in May 2020. Comcast(CMCSA)-owned NBCUniversal followed in July 2020 withPeacock.Discovery(DISCA) debuted itsDiscovery+ serviceon Jan. 4.ViacomCBS(VIAC) launchedParamount+on March 4.
Other services include Amazon(AMZN) Prime Video, Apple's (AAPL) Apple TV+,Walt Disney's (DIS) Disney+, Hulu and more.
Netflix Dominates 2021 Awards Season
This year, Netflix has racked up nominations and wins for film and television awards for its original programs.
On Sept. 19, Netflix shows won 44 Emmy Awards from the Television Academy, more than any other company. Its most-honored shows were "The Crown" and "The Queen's Gambit."
Netflix also won the most awards of any studio at the 93rd Academy Awards on April 25. It picked up seven Oscars, but it came up empty in the best picture and acting categories. Netflix headed into the ceremony with 36 nominations, far more than any other studio.
Netflix also garnered the most awards of any studio or network at the 26th annual Critics Choice Awards on March 7. It won 14 awards for productions such as "The Crown," "The Queen's Gambit" and "Ma Rainey's Black Bottom."
At this year's Producers Guild Awards on March 24, Netflix won awards for episodic TV drama ("The Crown"), limited series ("The Queen's Gambit") and documentary film ("My Octopus Teacher").
News about its awards has provided a modest lift for Netflix stock.
Is Netflix Stock A Buy Right Now?
Netflix stock is not a buy right now. It is trading beyond the5% buy zone of its recent breakout.
It's best to wait for a secondary entry, like a future bounce off the 50-day or 10-week moving average, or for a new base to form.