Streaming giant Netflix (NASDAQ:NFLX) heads into its second-quarter earnings report July 16 with all the momentum in the world. Netflix stock is up 30% over the last month and an astounding 70% year-to-date.
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The video streaming company’s stock has soared to a series of all-time highs in recent days and commentary from analysts remains bullish headed into Thursday’s report.
Portfolio Grader subscribers also know that Netflix stock carries an “A” rating in our grading tool, with a strong buy recommendation.
Why does Netflix have a bull case even after its dramatic rise? Let’s jump into the details.
What to Expect from Netflix Earnings
Analysts are looking for Netflix to post revenue of $6.1 billion in the second quarter, with earnings per share of $1.80. That’s a huge increase from a year ago, when the streaming services company recorded $4.9 billion in revenue and earnings per share of 60 cents.
Another key metric will be total paid subscribers. A year ago in the second quarter, Netflix had 151.6 million subscribers; analysts are expecting that number to increase to 190.6 million for this quarter.
Is that achievable? Well, last quarter Netflix added 15.77 million new subscribers to reach 182.9 million — so 190.6 is certainly in the ballpark. Netflix issued guidance of 7.5 million new subscribers this quarter but allowed that the impact on the novel coronavirus makes such estimate pure guesswork. Specifically, the company stated: “Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”
The Impact of Covid-19 on Netflix Stock
One of the reasons why Netflix’s first-quarter subscriber numbers were so huge was the Covid-19 pandemic. People were forced to stay home as movie theaters, restaurants and other entertainment venues shut down, so traffic for streaming services and games went through the roof.
Conventional thought was that the first-quarter surge couldn’t be repeated in the second quarter, and that Netflix could even see some slippage in its paid subscriber base in the second half of the year as things in the U.S. went back to normal.
But look at the numbers — total confirmed cases in the U.S. are over 3 million now, with the number of daily cases spiking much higher than we had in the first quarter. New York and the northeast, which was the epicenter of the pandemic in the first quarter, is largely under control now, but infections in Texas, Florida, Arizona, California and several other states are straining healthcare facilities.
Some states have even rolled back Covid-19 restrictions, so its certainly likely that Netflix will at the very least hit its target of 7.5 million new paid subscribers.
Goldman Sachs analyst Heath Terry is projecting Netflix to record at least 12.5 million new subscribers for the quarter. He increased his price target for Netflix stock from $540 to $670.
Customers Want New Content
Movie theaters have remained dark since early spring and there’s no real indication that they’ll be ready to reopen on a national basis anytime soon. That has forced Hollywood to either push major film releases back, or to release them on streaming services.
Netflix hosted the premiere of The Old Guard, a major release starring Charlize Theron, and a comedy starring Will Farrell and Rachel McAdams, Eurovision Song Contest: The Story of Fire Saga.
Streaming services like Netflix are the only avenue that Hollywood can use to push out content. That will not only boost subscribers from people who are tired of reruns of Friends and The West Wing, but also raises the likelihood that film studios will consider bypassing movie theaters more often in the future.
The Bottom Line on Netflix
My bullish call on Netflix hasn’t changed. The coronavirus pandemic makes Netflix the perfect business for the times and people are flocking to Netflix’s convenient streaming service as they look for ways to be entertained at home.
I’m looking for Netflix to have a strong earnings report this week, and for the company’s stock to continue its march higher.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.