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Netflix Stock Climbed Again: Time to Buy NFLX?

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Netflix (NFLX - Free Report) saw its stock price jump once again Wednesday as part of a roughly three-week expansion that might signal investors are ready to jump all the way back into the streaming giant. So, is now the time to buy Netflix stock with its third-quarter earnings on the horizon?

Overview

Netflix has received multiple upgrades and seen its price target increased over the last month or so as the cloud hanging over the streaming TV powerhouse starts to fade. It is worth remembering that NFLX’s big pullback stemmed almost completely from its second-quarter subscriber miss.

Last quarter, Netflix added 5.2 million new subscribers, which fell 1 million below its own forecast. The miss was made worse because NFLX had topped its subscriber projections in seven out of the previous nine quarters. More importantly, NFLX surpassed its estimates by 1 million in Q1 and topped its Q4 forecast by 2 million. Netflix management and CEO Reed Hasting didn’t really even offer much of an explanation for its key miss, except to say that it had happened before.

With that said, Netflix’s growth outlook remains strong, as does the larger streaming TV market. Guggenheim Partners analyst Michael Morris raised his NFLX price target to $420 on Monday. “Netflix subscriber penetration will significantly exceed what is implied in the company's current valuation,” Morris wrote in a note to clients.

Morris also predicted that Netflix's subscriber base will more than double by 2023, to climb above 285 million. The analyst pointed to the firm’s ability to expand internationally as a major reason for his optimism. Plus, he said that the streaming company has a leg up on some of its competitors in terms of technology.

Shares of Netflix closed regular trading hours Wednesday up 2.29% to $377.88 per share.

Price Movement

Investors will see in the first chart below Netflix’s impressive growth over the last five years, which crushes the S&P 500. Meanwhile, the second chart reveals NFLX’s recent surge that has it inching back up toward its all-time high.

 

 

Outlook

Now let’s take a quick look ahead at what investors should expect from Netflix in the third quarter and beyond.

Netflix hired Christie Fleischer away from its soon to be rival Disney (DIS - Free Report) at the start of September to become the head of its global consumer products team as it expands beyond content. Fleischer will “lead a team focusing on developing the consumer products portfolio across all categories for Netflix original series and films,” according to a Netflix statement.

It is also worth remembering that Netflix earned 112 Emmy nominations this year to the dethrone HBO’s (T - Free Report) 17-year streak at the top. Netflix also blew away third-place NBC’s (CMCSA - Free Report) 78, fourth-place FX’s 50, CBS’ (CBS - Free Report) 34, and streaming rival Amazon’s (AMZN - Free Report) 22. Netflix’s Emmy nominations will be key to its future as it’s often the big hit shows that win awards and drive cultural conversations, which eventually lead to overall success—case in point HBO.

Netflix has committed to spend billions of dollars on new content in order to compete with HBO, Amazon, Hulu, and soon enough Disney and Apple (AAPL - Free Report) , which is ready to roll out streaming content featuring A-list Hollywood stars.

The company expects to add 650,000 subscribers in the U.S. and 4.35 million internationally in the third quarter, which would bring its subscriber total to just over 135 million worldwide. Meanwhile, Netflix’s Q3 revenues are projected to surge by 33.7% to reach $3.99 billion, based on our current Zacks Consensus Estimate. Full-year revenues are expected to hit $15.87 billion, which would represent an approximately 36% surge.

At the other end of the income statement, Netflix is projected to see its adjusted quarterly earnings soar 134.5% to $0.68 per share, while its full-year EPS figure is expected to skyrocket 113.6%.

Netflix is set to release its Q3 financial results on Tuesday, October 16. And it might not be a bad time to buy NFLX based on its current growth projections within a booming industry. Not to mention Netflix stock is still “cheaper” than it has been recently.

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