Netflix - Buy or Sell - Earnings Today

Netflix before and after Earning

Today's winner : NFLX !!!

About the Company:
Netflix, Inc. provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD).

Analysis

Netflix online has been a major competitor to Movie Rentals like BlockBuster for many years.. Netflix has carved itself a monopoly space among online rentals where companies can take market shares just by word of mouth.

Netflix really launched itself when they switched from traditional DVD shipping business to Download movie business using Media players and Gaming Machines (PS3, XBOX,WII) . Its not until they launched into this domain that the stock price skyrocketed to triple digits gains.

One of the areas of concern is that the company recently announced on its blog a few new developments that could be of interest to customers. Most recently, Director of Product Management Jamie Odell chimed in to inform that users will no longer be able to add movies to their DVD queue from streaming devices. As far as we know, the functionality has only been available on a few platforms, but if you're apt to do all or most of your queue management then it could be an issue, if you only use the website then everything will be the same. 

The Stock price nearly tripled starting around 2009 to post triple digits gains due to failures by BlockBuster, Walmart etc. So we should think about what is the real driver for this stock now...I would say Smart Phone based users will be the primary customers in near future , with Verizon and Apple posting Good results . We do have a major Mobile media provider going forward. One thing that the Netflix lacks is the International Subscribers restricting users from abroad to subscribe due to copyright issues.

The Stock performance for One year is given Below.

You can see that the Netflix has been consitently bouncing off the 50 Day moving average, but the overall trend is up.. Going by the pattern we are due for another bounce from 50 MA , but also keep in mind that any major news or earning disappointment will breach the pattern towards a 40$ drop..

I see this as a consolidation pattern going forward...

Lets see how they did in the last Quarter

NFLX reported 3rd qtr 2010 earnings of $0.70 per share on 10/20/10. This missed the $0.71 consensus of the 28 analysts covering the company.

But when news hit the wire, stock was already trading at a 52 week high which is a very bad entry point for small investors..

Now lets see the consensus

Not changed from last quarter, its again $0.71 which is pretty lame considering that the Holiday season and winter are when people watch lots of movies from Home (I do it too by the way).

But still NFLX is high PE , high Beta stock which bring very high risk on both sides.. If they beat the estimates and post a good forward guidance you might see the Stock popping $10 tomorrow to $195.

If they just meet the estimates or Disappoint you see the stock dropping to $155 ..

So I suggest open your position two days after the earnings report and the good entry point will be around $178 if the stock price settles above the 50 MA .

Happy Investing