Is Netflix On Your Conviction List???
Happy New Year to Netlflix. Netflix has gained 16% during the first week
of trading for the year, 10% alone on Friday after Goldman Sachs added Netflix
to its conviction list. Stocks that make
their conviction list are hand-picked stocks that are expected to outperform
and deliver meaningful upside. So much
so, Goldman Sachs think Netlflix will be higher by 50% over the next 12 months.
50% upside represents a stock price of
$400.
Goldman Sachs believes Netflix’s investment in content, technology and distribution will continue to drive subscriber growth above Wall Street expectations both in the U.S. and internationally.
Netflix has been investing in original movies and programming to grow its subscriber base. Netflix spent ~$5 billion on original content in 2016 and ~$6.0 billion on original content in 2017, and $8 billion in 2018.
Netflix free cash flow of ~-$3 billion is up 33% compared to -$2.0 billion in 2017. Netflix expects its free cash flow in 2019 is expected to be the same as 2018 and expects negative free cash flows for several more years as it rapidly increases its spending on original content.
With a P/E of 67 and compared to the competition, Netflix is priced for perfection.
Netflix was up 51% for 2018, but down more than 25% in the past three months and more than 30% in the past six months.
However, price broke the daily down trendline and the momentum is to the upside now.
If Netflix is on your conviction list, a possible play is to ride the momentum into earnings on January 17th with the first test for price at the daily supply at $334.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Like the company not the stock as competition is coming soon with Disney’s streaming service which is a highlight of some of their content currently. Given the established franchises, it will be tough for them to compete for subscriber wallets.
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Yes, many companies that leased their content to Netflix is not starting to take it back to launch their own streaming service. I will be watching the price action after earnings in a couple of weeks.