Netflix Refreshes The Script For FAANG’s While Banks Yawn

The big news of the world today is the Inauguration of President Biden, but the big news of the financial world is the eye-popping rise of Netflix (NFLX) shares on the back of yesterday’s earnings release. As I write this, NFLX is up just under 15% and is trading just below all-time highs that were set this morning. That rally ignited sentiment in other large-cap tech stocks, propelling the NASDAQ 100 (NDX) and S&P 500 (SPX) indices. Most of the leading stocks in the top-heavy NDX opened the day with modest gains, but we have seen mega-cap tech stocks steadily move 3-4% higher even as NFLX consolidated its morning pop.

Investors become enamored with themes. The mega-cap tech theme drove major indices higher throughout most of last year. Even as investors began to favor out-of-favor banks, energy shares, and small-cap stocks, the largest tech shares never actually sold off. Even as the vaccine news diminished the appeal of “stay-at-home” stocks and an uptick in interest rates supposedly threatened their sky-high valuations, investors never abandoned those stocks. They simply increased their new money allocations into other sectors.

NFLX’s earnings report was initially greeted with a bit of a yawn. Revenues were $6.64 billion, essentially matching the $6.63 bn estimate, while GAAP EPS of $1.19 missed the $1.39 estimate. Tech investors often prefer to focus on Pro-forma earnings, however, and those were $1.76 beating the $1.48 estimate. But the key number was a huge growth in new subscribers, with 8.51 million signing up – well above the 6.03 million estimated. Once traders shifted their focus to that subscriber growth, along with subsequent comments about the prospects for positive cash flow and even buybacks, the stock got the positive reaction that it deserved.

The pandemic has been a huge boon to NFLX. People were stuck at home, starved for entertainment, and NFLX was there to deliver it. Bear in mind too, that NFLX is one of the rare companies that competes directly with Amazon (AMZN) and wins. It is fascinating to think that more established behemoths like AMZN and Disney (DIS) are playing catch-up with NFLX – not the other way around.NFLX is clearly winning the mindshare battle for streaming customers, and those customers have proven to be “sticky”.It is reasonable for investors to expect that those new customers will remain subscribers for some time and that the associated revenue will persist.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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Ema Davidson 1 month ago Member's comment

$NFLX continues to impress me.