Netflix stock will continue rising as the company promises it won't run out of new content during the coronavirus pandemic, unlike Hollywood.
Netflix (NASDAQ: NFLX) stock will rise even higher in the coming months. Having added 15.8 million new subscribers worldwide in Q1 2020, the company will likely add a similar number in Q2.
Why? Well, for one, the coronavirus pandemic had barely started in the first three months of the year. Lockdowns weren’t really a thing in January and February, but they’ll undoubtedly remain a thing in April, May, and June.
Second, Netflix is now promising to release a steady stream of new content as the pandemic continues, keeping old and new subscribers glued to their screens as the lockdowns continue.
While the coronavirus pandemic won’t last forever, viewers that have subscribed to Netflix during the outbreak are likely to remain permanent converts. So while Netflix stock won’t keep flying indefinitely, it’s unlikely to fall in any significant way post-coronavirus.
Netflix has been the big winner of the coronavirus pandemic. On March 16, NFLX shares were worth $298.84. Upon the close of trading Tuesday, the stock was worth $433.83, representing an increase of 45%.
A rising stock price isn’t the only thing Netflix has to celebrate. On Tuesday, it released its quarterly financial report, announcing the addition of 15.8 million subscribers globally–more than double what it forecast in January.
Still, Netflix stock didn’t witness significant gains Tuesday, closing barely unchanged from the day before. That was mostly because its letter to shareholders warned that subscriber growth might not continue for much longer:
We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon.
Despite Netflix’s cautiousness, there’s plenty of reason to believe that its subscriber numbers and stock will continue doing well for the rest of the year. Goldman Sachs is forecasting a price targeting for Netflix stock of $540:
While management suggested this outperformance was a function of subscribers being pulled forward and that net adds in the second half would be down vs. the prior year, we believe this is likely to prove overly conservative given the network effect of additional subscribers.
The most important point to make is that, despite what Netflix is hoping, “home confinement” won’t be ending anytime soon.
Yes, there are signs that lockdowns may be partially quickly eased in various countries. But these will be only partial relaxations. In Spain, for example, children will be allowed to go outside for walks from next weekend. In Italy, some–but not all–businesses will be allowed to reopen from May 4.
Such changes hardly count as a complete return to normal. Researchers at Harvard last week predicted that the U.S. would have to keep some social distancing measures until 2022. If such a prediction is mainly accurate, this means that people will continue going out significantly less for the foreseeable future.
In such a situation, Netflix will continue seeing above-average subscription growth. And the same goes for Netflix stock.
Such a process is helped by Netflix’s plan to continue releasing new content during the pandemic. As revealed by chief content officer Ted Sarandos during an earnings call with analysts on Tuesday, it has over 200 shows in post-production. Meanwhile, it’s still creating animated series remotely.
We work really far out relative to the industry. We don’t anticipate moving things around.
In other words, people won’t be canceling their subscriptions. And with more people than usual confined to their homes for many months to come, more new subscriptions are likely. So even if the enormous rallies won’t last, expect Netflix stock to continue doing well.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and shouldn’t be considered investment advice from CCN.com. The author holds no investment position in Netflix at the time of writing.
Last modified: September 23, 2020 1:50 PM