Just a month ago after Netflix (NFLX) squashed password sharing, the stock got an upgrade and began rallying. But today, the streaming provider has taken a step backward after falling short of analyst estimates for the second quarter.
Making matters worse, the company’s guidance for the 3rd quarter is below expectations, too. That being said, the company is optimistic about revenue acceleration on the road ahead.
Netflix did see impressive growth in the second quarter – just not in line with what Wall Street was looking for. After breaking up shared accounts, the company added 5.89 million new subscribers to the platform – way above the 2.1 million that was projected.
That being said, it wasn’t enough to please Wall Street – as revenue of $8.2 billion fell just shy of the consensus of $8.3 billion. While this was a 2.7% growth from the same period last year, it was underwhelming in considering the boost to subscribership.
But, what really has analysts and investors concerned is the stagnant growth being forecasted for Q3 – $8.5 billion compared to the consensus forecast of $8.7 billion.
Still, CFO Spencer Neumann remains optimistic. In an attempt to dispel fear, he said that revenue from the second quarter was right on track with the company’s own expectations. Furthermore, he said that the company is poised to accelerate revenue in Q3 before boosting it further in Q4.
This growth will come from a balance between more strategic pricing, subscriber growth, and a more meticulous approach to ad selling. However, Neumann reiterated that these goals won’t bear fruits immediately – and that investors (and Wall Street) should remain patient.
The underwhelming earnings report and guidance sent shares down more than 10% in the past 48 hours. That being said, NFLX was gaining momentum up to this point – and had climbed more than 32% in the last 3 months. So, is this just a temporary storm that investors should wait to pass? Or is this a real cause for concern?
Below, we’ll highlight 3 things we’ve uncovered through the VectorVest stock forecasting software to help you make your next move with complete confidence and clarity.
NFLX May Have Poor Upside Potential, But it Does Have Good Timing and Excellent Safety
The VectorVest system simplifies your trading strategy through a proprietary stock rating system. In just 3 ratings, you’re given all the insights you need to make informed decisions in the stock market.
These are relative value (RV), relative safety (RS), and relative timing (RT). Each of these sits on a scale of 0.00-2.00, with 1.00 being the average. Based on the overall VST rating for a given stock, you’re presented with a clear buy, sell, or hold recommendation - at any given time. As for NFLX, here’s what you need to see:
- Poor Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (projected 3 years out) to AAA corporate bond rates and risk. As for NFLX, the stock has a poor RV rating of 0.60. And, the stock is massively overvalued - with a current value of just $169.
- Excellent Safety: In terms of risk, though, the stock has excellent safety - with an RS rating of 1.41. This is calculated by analyzing the company’s financial consistency & predictability, debt-to-equity ratio, and business longevity.
- Good Timing: Despite the sell-off we’ve witnessed the past few days, NFLX still has a good RT rating of 1.23. This is based on the direction, dynamics, and magnitude of the stock’s price movement. It’s taken day over day, week over week, quarter over quarter, and year over year.
The overall VST rating of 1.16 is good for NFLX - but is it enough to justify buying the stock? Or, should you wait for the noise to die down around this poor earnings report and for the stock to regain positive momentum?
Don’t miss this opportunity - a free stock analysis awaits you at VectorVest today. Get a clear buy, sell, or hold recommendation and execute your next trade with confidence!
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VectorVest advocates buying safe, undervalued stocks, rising in price. The second quarter was underwhelming for NFLX, and the stock has poor upside potential. But, the stock does have good timing and excellent safety.
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