Netflix Stock (NFLX): Should I Buy It Now?

By Amit Chowdhry ● May 23, 2020
  • Should you buy Netflix Inc (NASDAQ: NFLX) stock now? Here is some information to help you decide.

Streaming entertainment company Netflix Inc (NASDAQ: NFLX) announced its quarterly earnings a few weeks ago and the company said it hit a record 15.77 million net additions for the first-quarter fiscal year 2020 earnings — which is significantly higher than the 9.6 million added in the same period last year. The company’s revenue increased by 27.6% year-over-year and net income more than doubled from $344 million to $709 million.

The reason why Netflix Inc (NASDAQ: NFLX) saw a surge in net additions is largely due to the work-from-home orders associated with the COVID-19 pandemic. As a whole in 2019, Netflix saw 27.8 million in total net additions.

Netflix To Automatically Cancel Inactive Accounts

Netflix Inc (NASDAQ: NFLX) recently decided to proactively cancel accounts of inactive subscribers. The inactive accounts represent under half of 1% of the company’s overall member base (only a few hundred thousand). And that is already factored in the company’s financial guidance. Any user who cancels their account and rejoins again within 10 months will still have their account details available.

“You know that sinking feeling when you realize you signed up for something but haven’t used it in ages? At Netflix, the last thing we want is people paying for something they’re not using” said Eddy Wu, Director of Product Innovation at Netflix. “So we’re asking everyone who has not watched anything on Netflix for a year since they joined to confirm they want to keep their membership. And we’ll do the same for anyone who has stopped watching for more than two years. Members will start seeing these emails or in-app notifications this week.”

Should You Buy Netflix Inc (NASDAQ: NFLX) Now?

Based on the reports I have been reading, 66% of analysts are saying buy, 22% of analysts are saying hold, and 12% are saying sell. And in a different report featuring analyst consensus tallies, 9 analysts are saying strong buy, 9 are saying buy, 12 are neutral, 0 say sell, and 0 say strong sell.

Case From The Bulls

The bulls are saying that Netflix’s internal recommendation software and large subscriber base is giving the company an edge when deciding which content to buy in the future. And international expansion provides attractive markets for bringing on new subscribers. Plus Netflix built a substantial content library that will benefit the company for the long-haul.

Case From The Bears

The bears are saying that Netflix is continuing the burn billions of dollars of cash for creating original content without any end in sight. Plus the need for increased content and marketing spend outside the U.S. is limiting the rate of margin expansion for international segments. And the level of competition in the U.S. and internationally has been increasing and will continue to happen in the near future, including Disney’s SVOD service.

Disclosure: I own a small number of Netflix Inc (NASDAQ: NFLX) shares. I wrote this article myself and I do not have any business relationship with any company whose stock I write about. I am not a financial advisor and all articles are my opinion. You should do your own due diligence and consider talking to a financial professional before investing.