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COULD NETFLIX BE WORTH $1 TRILLION
𝗟𝗘𝗧'𝗦 𝗚𝗘𝗧 𝗧𝗘𝗖𝗛𝗡𝗜𝗖𝗔𝗟, 𝗧𝗘𝗖𝗛𝗡𝗜𝗖𝗔𝗟 (𝗜 𝗪𝗔𝗡𝗡𝗔 𝗚𝗘𝗧 𝗧𝗘𝗖𝗛𝗡𝗜𝗖𝗔𝗟🎵)
After forming a base since July – Netflix looks set to once again retest a stubborn $550 resistance level that has acted as the summit of a long sideways trading channel! So what can power Netflix through $550? How far can the stock travel if it does breakout? AND dare I say, what will happen if it fails at $550 for a 4th time?
BULL CASE FOR NETFLIX
𝗘𝗔𝗥𝗡𝗜𝗡𝗚𝗦 𝗚𝗥𝗢𝗪𝗧𝗛:
Whilst Netflix’s revenue growth is still impressive (+30%) their net income is 𝗚𝗥𝗢𝗪𝗜𝗡𝗚 𝗙𝗔𝗦𝗧𝗘𝗥 than all other members of the FAANG group + Microsoft (Other comparably large market cap stocks)
𝗣𝗥𝗜𝗖𝗜𝗡𝗚 𝗣𝗢𝗪𝗘𝗥:
Netflix has increased the price of their memberships 4 times in the last 5 years. Now with almost 200 million users, every time Netflix raises the monthly subscription price by $1 – the company will add an extra $2.4 billion per year in revenue! That’s 𝟭𝟬% 𝗥𝗘𝗩𝗘𝗡𝗨𝗘 𝗚𝗥𝗢𝗪𝗧𝗛 without accounting for the millions of new subscribers they continue to attract!
𝗜𝗡𝗧𝗘𝗥𝗡𝗔𝗧𝗜𝗢𝗡𝗔𝗟 𝗚𝗥𝗢𝗪𝗧𝗛:
As US subscriber additions began to plateau, Netflix has begun attracting customers across South America, Europe and Asia at a rate reminiscent of the early days. In fact, India is likely going to be a key market for Netflix! The Indian video streaming market is projected to be the 𝗙𝗔𝗦𝗧𝗘𝗦𝗧 𝗚𝗥𝗢𝗪𝗜𝗡𝗚 in the world (29% CAGR) and Netflix is doing a great job of winning in this market!
This year Netflix grew subscribers in the region by 200%, they almost doubled their revenue and despite heavy investments – Netflix managed to grow local earnings by 73%! Markets like this will likely fuel Netflix’s growth for years to come.
𝗙𝗨𝗧𝗨𝗥𝗘 𝗜𝗡𝗖𝗢𝗠𝗘 𝗦𝗧𝗥𝗘𝗔𝗠𝗦:
For some time, investors wondered how Netflix would address it’s insatiable cash burn rate. How could the company become profitable enough to warrant such a high market cap when year-after-year content spending continued to outpace earnings? Netflix has eased these fears by flexing it’s price power with multiple price hikes. That said, there is a theory that Netflix plans to one day become one of the wold’s largest 𝗗𝗔𝗧𝗔 𝗔𝗚𝗚𝗥𝗘𝗚𝗔𝗧𝗜𝗢𝗡 companies.
𝗥𝗘𝗠𝗘𝗠𝗕𝗘𝗥, first and foremost Netflix is a tech company with excellent AI capabilities! Therefore, the company could easily begin to monetise the huge amount of user activity and viewing data that they collect from their 200m customers! Not only does Netflix know your age, sex & nationality. They also know what you like to watch, when you watch it, pinpoint moments where you switch off a show and lot’s of other key info that is 𝗪𝗢𝗥𝗧𝗛 𝗔 𝗙𝗢𝗥𝗧𝗨𝗡𝗘 to movie studios, marketing companies & advertisers!
BEAR CASE FOR NETFLIX
𝗖𝗨𝗥𝗥𝗘𝗡𝗧𝗟𝗬 𝗢𝗩𝗘𝗥𝗩𝗔𝗟𝗨𝗘𝗗:
Based on various metrics including; Price to sales (10), Forward price-to-earnings (60), Free cash flow per share (1.4) & PEG (2.89), Netflix is 𝗢𝗩𝗘𝗥𝗣𝗥𝗜𝗖𝗘𝗗 versus other members of the FAANG group.
𝗧𝗢𝗨𝗚𝗛 𝗥𝗘𝗦𝗜𝗦𝗧𝗔𝗡𝗖𝗘:
As the stock approaches $550 per share, Netflix is at risk of forming a 𝗤𝗨𝗔𝗗𝗥𝗨𝗣𝗟𝗘 𝗧𝗢𝗣! Over the past 6 months, Netflix has suffered 3 serious declines of 15% upon reaching $550. If the stock begins to slow down as it reaches this level for a 4th time then investors may panic and spark another big sell-off! If this occurs, then expect Netflix to drop like a hot potato straight to $500 and potentially breakdown further to $475!
𝗖𝗢𝗠𝗣𝗘𝗧𝗜𝗧𝗜𝗢𝗡:
But don’t worry its only Disney, Apple, Amazon & Google that Netflix have to worry about! The video streaming market seems like one of the safest long term growth trends out there however, Netflix finally has company in the shape of 4 𝗔𝗚𝗚𝗥𝗘𝗦𝗦𝗜𝗩𝗘 𝗚𝗜𝗔𝗡𝗧𝗦 who don’t like sharing! If Netflix had found itself in this war 3 years ago then investors would be running scared. However, Netflix has used their first mover advantage well to 𝗚𝗥𝗢𝗪 𝗥𝗔𝗣𝗜𝗗𝗟𝗬 into a worthy competitor to anybody.
It’s been an easy game trading Netflix stock for the past 6 months… Buy near $475 & sell near $550! One of these levels has to break sooner or later and when it does Netflix will have a 𝗛𝗨𝗚𝗘 𝗕𝗥𝗘𝗔𝗞𝗢𝗨𝗧… or down! Right now the proverbial Netflix tennis ball is on it’s way to $550, if it’s not returned then I think we could see a 20% jump in the stock. This could just be the start as I believe that Netflix has the potential to one day reach a $1 trillion valuation... Why not? 𝗦𝗧𝗥𝗔𝗡𝗚𝗘𝗥 𝗧𝗛𝗜𝗡𝗚𝗦 have happened 😉
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