Internet television network Netflix has a commanding lead in the streaming video market. And its addition of an advertising-supported service tier has reinvigorated growth. Many investors 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. Netflix shut down its legacy DVD service in October 2023 after 25 years in operation.
Netflix began offering a streaming video service with licensed movies and TV series in 2007. It later entered the content production business and released its first major original series, "House of Cards," in February 2013.
Netflix offers its subscription video-on-demand service in over 190 countries.
Subscriber Growth Drives Netflix Story
Netflix stock has benefited from the cord-cutting trend as people quit traditional pay-TV services.
In recent years, Netflix has been focused on growing its global subscriber base. It wants to build a competitive moat with scale. It has been investing heavily in local-language content production worldwide. Netflix stock performance is linked to its net subscriber additions.
But Netflix stock tumbled 51% in 2022 as subscriber growth stalled. That year, it reported two straight quarters of subscriber declines. Growth rebounded in 2023 thanks to the addition of a lower-priced, advertising-supported service as well as a crackdown on unpaid account sharing. In 2023, NFLX stock rose 65%.
In the second quarter, Netflix added 8.05 million subscribers, vs. forecasts for 4.53 million. It ended the June quarter with 277.65 million subscribers worldwide. But Netflix stock wavered on the company's soft revenue outlook for the third quarter.
More recently, Netflix has been scaling its advertising business. Research firm eMarketer says Netflix's ad revenue growth has accelerated for the past three quarters.
Netflix Stock Fundamental Analysis
In the June quarter, Netflix earned $4.88 a share on sales of $9.56 billion. Analysts polled by FactSet had predicted Netflix would earn $4.74 a share on sales of $9.53 billion. On a year-over-year basis, Netflix earnings rose 48% while revenue increased 17%.
For the current quarter, Netflix forecast earnings of $5.10 a share on sales of $9.73 billion. Wall Street was looking for earnings of $4.74 a share on sales of $9.81 billion in the third quarter. Netflix's guidance would translate to year-over-year growth of 37% in earnings and 14% in sales.
Netflix did not give a specific forecast for new subscribers in the current quarter. "We expect paid net additions to be lower than Q3 '23, which had the first full-quarter impact from paid sharing," Netflix management said in a shareholder letter. In the third quarter last year, Netflix added 8.76 million new subscribers.
After the July 18 report, analysts expressed concerns that Netflix's advertising business is taking longer than expected to scale.
However, on Aug. 20, Netflix announced that its upfront advertising commitments more than doubled this year. NFLX stock spiked to a record high of 711.33 on the news.
Dabbling In Live Content, Games
On Jan. 23, Netflix announced a deal with TKO Group Holdings to carry the WWE's flagship pro wrestling program "Raw" starting in January 2025. The 10-year deal is worth over $5 billion.
After experimenting with one-off events, Netflix is making a major commitment to live entertainment with the TKO deal. On Netflix, "Raw" will be available initially in the U.S., Canada, U.K. and Latin America, among other territories, with additional countries and regions to be added over time.
Also, Netflix plans to televise a live boxing match between Jake Paul and Mike Tyson, scheduled for Nov. 15.
On May 15, Netflix announced that it will stream two NFL games on Christmas Day this year. Plus, it will stream at least one Christmas Day football game in 2025 and in 2026.
The addition of live content will help attract advertisers to Netflix, Argus Research analyst Joseph Bonner said.
To create a stickier service, Netflix added mobile video games as part of its subscription offering in November 2021. Subscribers can play the games on Android and Apple iOS smartphones and tablets.
Netflix currently offers more than 80 games to subscribers. They include action, arcade, puzzle, racing, sports and casino games.
Netflix Content Draws Subscribers
Since it started its original content push, Netflix has launched quite a few hit shows. They include "Stranger Things," "The Crown," "Squid Game," "Wednesday," "Ozark" and "Bridgerton."
It also has premiered popular original movies such as "Bird Box," "Extraction," "Murder Mystery," "The Old Guard" and "Red Notice."
Recent buzzworthy shows on Netflix include TV series "3 Body Problem," "Baby Reindeer" and "The Gentlemen." Popular new original movies include "Rebel Ridge," "Atlas" and "The Union."
Meanwhile, Netflix is facing competition from traditional media companies. That includes Max from Warner Bros. Discovery, Paramount+ from Paramount Global and Peacock from Comcast-owned NBCUniversal.
Other major services include Amazon Prime Video, Apple's Apple TV+, and Walt Disney's Disney+ and Hulu.
On Aug. 7, Netflix stock rose on news that Disney is raising prices for all stand-alone tiers of Disney+, Hulu and ESPN+ in the U.S. this fall, as well as for most of its bundles. Disney's move opens the door for Netflix to raise its prices, Jefferies analyst James Heaney said.
Netflix Stock Technical Analysis
Netflix stock has an IBD Composite Rating of 97 out of 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Netflix stock has an IBD Relative Strength Rating of 90 out of 99. The rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.
Netflix stock ranks first out of 20 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. The group ranks No. 86 out of 197 industry groups that IBD tracks. Growth stock investors should focus on leading stocks in the top 40 industry groups.
On Aug. 20, Netflix stock broke out of a cup base at a buy point of 697.49, according to IBD MarketSurge charts. That same day, it notched a record high of 711.33. The 5% buy zone extends to 732.36, according to IBD trading guidelines.
Is Netflix Stock A Buy Right Now?
Netflix stock is flirting with a buy zone now. It ended the regular session on Sept. 17 at 706.91. That's in the buy zone of its recent breakout.
On a positive note, during its recent pullback, Netflix stock found support at its 50-day moving average line. It also didn't fall into the stop-loss sell zone.
Be sure to keep an eye on the overall stock market. If it turns negative, don't try to fight the general stock market direction. Check out IBD's Big Picture column for the current market direction.
To find the best stocks to buy and watch, check out IBD's Stock Lists page. More stock ideas can be found on IBD's Leaderboard, MarketSurge and SwingTrader platforms.
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