Netflix Stock: Is the Worst FAANG Performer a Buy Ahead of Earnings?

Jul 16, 2021 05:59 PM ET
Netflix Stock: Is the Worst FAANG Performer a Buy Ahead of Earnings?

The Netflix stock price will be in the spotlight as the company prepares its second-quarter results. The stock is trading at $542, which is about 13% above the lowest level in May.

Netflix has lagged other FAANG stocks

Netflix has lagged other FAANG stocks

 It has risen by about 5% this year, becoming the worst-performing FAANG stock.

Netflix has underperformed

Netflix was widely viewed as one of the best pandemic stocks in 2020. As people stayed at home, they turned to the company’s platform for entertainment. As a result, the company managed to grow its total users to more than 200 million even as competition with brands like HBO, Disney+, Paramount+, and Discovery increased. 

As this user growth continued, the company’s revenue increased from more than $20 billion in 2019 to more than $24.5 billion. Since the company spent less on content during the pandemic, its profit also grew to $2.7 billion.

Therefore, the Netflix stock has lagged because investors are concerned about its growth this year as more people go back to the office. Also, the company is expected to spend more than $17 billion in content, which will lower its profitability.

In the most recent quarter, the company said that it added 4 million new customers. This was substantially lower than the 10 million that Wall Street was expecting. In its guidance, the company warned of the potential drop in customer growth later this year. 

Netflix earnings next

The next key catalyst for the stock will be its second-quarter earnings that will come out on July 20th. Data compiled by SeekingAlpha shows that the company is expected to release more than $7.32 billion in revenue and an EPS of $3.15. Going by its past track record, there is a possibility that the company will release better numbers than expected.

In all Netflix earnings, investors focus on the company’s customer additions. Expectations are relatively muted going into the earnings release. Analysts expect that Netflix added about 1 million users in the second quarter. These will be the slowest additions in years. Further, investors will be watching the company’s forward guidance on user growth and content spending. 

Is Netflix stock a buy?

Netflix has grown from a relatively small video delivery company into one of the biggest media companies in the world, with a market cap of more than $225 billion. Unlike many companies of its size, Netflix has a simple business model and one source of revenue. It produces or buys content, adds to its applications, and makes money from user subscribers.

This could be about to change. Recently, the company announced that it would launch a new game streaming service in its bid to compete with the likes of Amazon Twitch. This business may give it extra subscribers and more income.

Meanwhile, the company will likely see more users in the second half of the year as it launches some popular shows like Money Heist season 2. 

Netflix stock price analysis

The weekly chart shows that the Netflix stock has been moving sideways in the past few months. It has remained between the support and resistance levels at $475 and $575. 

Netflix stock price chart

The stock is also being supported by the 50-day and 25-day Moving Average while oscillators like the MACD and the Relative Strength Index (RSI) have kept rising. The chart also shows that the shares have risen in the past five consecutive weeks. Therefore, I expect that the shares will keep rising ahead of the company’s earnings.

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