Netflix share price is down by more than 7% in premarket trading as investors react to the company’s earnings. The shares are trading at $490, which is lower than yesterday’s close of $520. The price is also lower than its all-time high of $575.
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Netflix earnings review
Netflix has been among the best beneficiaries of the pandemic. As more people stay and work at home, many of them have turned to the company for their entertainment. As a result, the company has added millions of new users in the past few months. Indeed, in its earnings report yesterday, the company revealed that it had added more than 10 million users internationally.
The virus has had another positive impact to Netflix. Since governments placed a pause on large gatherings, the firm has not had to spend a lot of money in content development. As a result, it has added millions of users at a time when it is not spending a lot. This has helped Netflix share price jump by more than 55% this year and by more than 20% in the past three months.
In its news release yesterday, the firm said that it made more than $6.15 billion in the second quarter, higher from $4.92 billion in 2019. The figure was above the analysts consensus of about $6.08 billion. Because of lower costs, the firm’s profit rose to $720 million, up from $271 million.
Most importantly, the company elevated Ted Sarandos to become the co-CEO. This means that the company is preparing the long-serving executive to replace Reed Hastings as CEO. The firm said:
“Ted drove the revolution in our content strategy, which was way ahead of its time and has been key to our continued success. It was typical of his ability to see where the industry—and consumer tastes—are headed.”
Is Netflix Stock a Good Buy Right Now?
“Is Netflix stock too expensive?” That is a popular question among people who want to invest in the company. At the current price, Netflix is being valued at more than $231 billion, making it the biggest media company in the world. Walt Disney is valued at $217 billion.
The company has a forward PE ratio of 60x, which makes it more expensive than most peers like Disney and Viacom hat have a PE multiple of 5.7 and 38 respectively. At the same time, the firm has more than $5 billion in cash and short term investments and more than $14 billion in debt.
As shown below, sell side analysts are torn about the firm. In a statement, analysts at Pivotal Research reiterated their buy rating to $600 while those at Rosenblatt placed their estimate for Netflix share price to $400. Those at Stifel, Credit Suisse, and Morgan Stanley see the stock at $500, $525, and $575 respectively. The most bearish analyst are at Wedbush who see it falling to $220.
Netflix share price outlook
The daily chart below shows that Netflix share price has been in a downward trend in the past few days. If the stock opens at $488, it will be the lowest level since July 6. It will also move below the important 23.6% Fibonacci retracement level.
Still, the stock is above the 50-day and 100-day exponential moving averages. It is above the ascending trend line that connects the lowest levels on March 18, June 12, and June 29. This means that the upward trend will continue so long as the price is above this trend line.
On the flip side, a move below $450 will invalidate this trend. This is an important psychological level that is also along the 38.2% retracement level.