Is Netflix a buy into earnings?

Everyone loves digital entertainment, from streaming movies to watching your favorite show. Here is the breakdown on $NFLX, otherwise known as Netflix.

Current Price: $530.79

52/Wk High: $575.37

52/Wk Low: $265.80

Read below for the breakdown!

Netflix is one of the best known subscription streaming services in the world. With active operations in over 190 countries, it's safe to say Netflix has built a strong footing within the entertainment space. 

Taking a look at Netflix stock, the price itself can be broken down by the company's segments. According to TREFIS (@trefis) 50.80% of the stock price is based on Netflix’s International Streaming Subscriptions segment. 

Furthermore, 48.6% of the stock price is based on the US Streaming Subscription segment, and just 0.6% is based on the US DVD Subscription segment. 

In the past several weeks the stock has been on fire due to upcoming earnings, but it's important to take a look at the past earnings as well.

Taking a look at the most recent quarter, Q2, Netflix reported a miss. Netflix reported a Q2 miss with an EPS of $1.59 versus the analysts consensus EPS estimate of $1.81. 

On the other hand, revenues beat expectations and continued to grow in Q2. Netflix reported $6.1 billion in revenues for the quarter, representing a solid 24.89% gain YOY and above the expected Q2 revenues expectation of $6.08 billion.

It is also important to note that Netflix beat on global paid net subscriber additions in Q2, reporting 10.09 million additions, versus the expected 8.26 million additions forecasted. 

Taking a look at guidance, Netflix management offered mixed Q3 expectations. Netflix expects Q3 revenues will be $6.33 billion along with an EPS of $2.09.

When it comes to expected subscriber growth, Netflix expects to add 2.5 million subscribers in Q3, which missed analysts expectations of 5.27 million.

Digging into the balance sheet, the numbers are not terrible. As of Q2 Netflix reported the following balance sheet levels;

Total Debt: $15.794 billion

Total Liabilities: $27.841 billion

Total Assets: $37.175 billion

Cash/Short Term Invest.: $7.153 billion

Based on the balance sheet, Netflix is strong and continually growing, but continually increasing Total Debt is a worry. 

Given the mixed numbers, analysts are widely spread on the name. Currently the mean price target for Netflix sits at $564.83/share, representing a 6.41% upside. 

Secondly, the high price target is $670/share, representing 26.23% upside while the low price target is $220.00/share, representing a -58.55% downside. 

While the analysts are just as mixed as last quarters earnings numbers, the big money continues to be very bullish.

When last reported, 81.12% of Netflix was owned by institutions. Top holders include Capital Research Global Investors, The Vanguard Group, and Fidelity Management & Research.

Other notable institutions that maintain holdings of Netflix stock include T. Rowe Price Associates, BlackRock Institutional Investors, and State Street Global Advisors.

Taking a look at the charts, Netflix has been on fire since its bottom off of the Q2 earnings sell off. 

Based on the six-month charts the MACD is currently trending upward but flashing signs of weakness after a sizable muli-week run. At the moment, the MACD sits within an upward momentum range of 12.28 down to 9.36.

Furthermore, the six month RSI sits at 54.97 along with a decreasing CCI, which currently sits at 73.71. Based on the technicas, a pull back prior to earnings could occur but the stocks long term upward trend is still strongly intact.

In short, Netflix is an excellent long term pick. Given the consistently solid growth, future of digital content streaming, and continued revenue growth I believe Netflix can continue to move higher. 

On the other hand, in the near term Netflix stock could pullback prior to or after Q3 earnings on October 20th. If you do jump in on the name, I recommend a close stop loss. 

EAT - SLEEP - PROFIT 

Disclaimer: This is not direct financial advice, simply opinion based on independent research.