Netflix (NASDAQ: NFLX) is mutating into a NASDAQ giant as the pandemic sends thousands of viewers towards the streaming service. The massive influx of users is causing investors and institutions to forecast positive FY2020 earnings on the 16th of July. It seems that Netflix is apart of the lucky few who could be reporting positive financials. Especially, as financial pessimism is sweeping across the retail, travel, and banking industries in anticipation of worse than expected earnings. Netflix’s massive investor backing combined with the crippling of other industries is causing many investors to consider investing in the streaming behemoth. Thus, today we will provide our viewers with an objective opinion on NFLX’s earnings and whether they have potential in the future.
Table of contents 1. What to expect for Netflix's earnings 2. Is NFLX a safe haven? 3. Does YIG see value in the streaming giant?
What does NFLX have in store for FY2020 earnings?
On face value, it appears NFLX should be reporting positive earnings to come Thursday. Mainly, because when a share price moves before an earnings report, it is said the announcement is priced in. Thus, with Netflix rising in the past couple of weeks, investors can only expect the results to be positive. However, YIG would like to point out that humans are wishful thinkers. Investors are creating a positive earnings image for Netflix even though the possibility of weak earnings still exists. Also, trading on the Netflix hype is dangerous, especially when the reported mediocre financials in Q3 2020.
For NFLX to rock the investing world on Thursday, they must report increased revenue in the subscription domain.
Receiving a bucket load of users is great. However, that was the story for March. The change in social conditions, especially as society tried to revert to normal, could have significantly impacted Netflix’s subscriber base. The management at Netflix reiterates this point.
“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.”
Thus, if Netflix reports worse than expected subscription revenue, NFLX could plummet. Overall, investors should expect a big swing either way in the NFLX stock.
Is NFLX a safe haven?
Netflix is undisputably a pandemic proof stock. If we bunker down again, we know people will gravitate towards Netflix as an escape or enjoyment. However, lockdowns aside, the NASDAQ itself is becoming a safe haven. The bulls are rallying behind tech stocks because they have the highest chance of surviving a pandemic, recession, and transforming into a digital economy. Thus, Netflix, to a certain extent, is a safe haven in the current investment landscape.
Does YIG see potential in Netflix?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Short answer: YIG sees potential. However, investing before and after the earnings report seems to be a wiser investment. (opinion not advice)
Riding the earnings wave
Investing in short-term gains is incredibly popular right now. Because expectations are changing daily. Investors might look to jump in before earnings and pull out on Thursday. However, holding through Netflix’s earnings is still a big gamble no matter what institutions or hedge funds say. Because the margin for downside still exists. Thus the possibility that you invest, NFLX post poor earnings and then lose your hard earned cash, is still high.
In saying that, riding the anticipation in the case of Netflix is rather smart (opinion not advice). Because the word on Wall Street is, NFLX will post positive earnings. Thus, riding the hype and pulling out before earnings could provide a capital gain (opinion not advice). Yes, the profit might not be gigantic but you have significantly de-risked your investment. Remember you cannot lose by taking a profit, no matter how small it is. Overall, YIG does not suggest one short-term strategy over the other. Instead, we are merely putting both forward so you can make an informed investment.
Investing for the long-term
Despite the uncertain future, the long-term outlook is relatively positive. Netflix is a pandemic-proof stock and a streaming service market leader. Not to mention, investors will likely transfer their funds towards the NASDAQ. Because most of the other industries are bearish (opinion not advice). If NFLX posts weak earnings or we enter a bear market, then long-term investors would have a prime opportunity to cement their position. (opinion not advice) However, Netflix is not necessarily a recession-proof stock. Because in tough times families will likely scrap subscriptions. Thus, when investing in the long-term it is imperative to factor in poor/positive earnings, a bear-market, and a prolonged recession.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick Mcloughlin, Senior Manager of YIG.