Netflix is nice but…

What happens when the lockdown ends?

Andrew Willis 28 April, 2020 | 1:38AM
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Editor's note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.

Andrew Willis: Netflix (NFLX) delivered an earnings surprise last week with a surge of new subscribers that more than doubled its guidance for the quarter. But its earnings were only 1% ahead of our projections and we can’t help but wonder what’s going to happen when the lockdown is over.

Sector analyst Neil Macker says that the subscriber beat was a ‘pull-forward’ of long term growth, meaning maybe all of this was more or less expected – just not this early. With other heavyweights like Disney and HBO to contend with, it’s hard to see how the price of the stock reflects its potential. 

We’re willing to give Netflix a ten-dollar upgrade on its fair value, which is already more than doubled by its current trading price. But double the subscribers now doesn’t mean it’s a sure thing forever. After all, the company no longer provides guidance for domestic and international net subscriber additions, so it is hard to predict.

Some numbers and comparisons can help though. Look at how the subscriber growth for this quarter, even with an audience that was literally captivated, wasn’t able to beat new subscriber levels from 2018.

Netflix may need to get some serious growth in international markets to make up for investor expectations. That being said, this one-star stock may surprise and steal the show in a streaming world that is only just beginning to steal the show in Hollywood.

For Morningstar, I’m Andrew Willis. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Netflix Inc669.38 USD2.47Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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