Netflix (NASDAQ:NFLX) has had a Jekyll-and-Hyde year on the markets. Up 40% year to date through July 2, NFLX stock hasn’t had much momentum in the past three months, delivering a mere 2% equity increase to shareholders.
It’s hard to feel sorry for Netflix shareholders when they’re up 40% on the year and 41% annually over the past five years, though. For those lucky people who bought NFLX stock in 2007 when the company started video streaming, your investment is up by hundredfold.
But a mere 2% over the last three months? That pales in comparison to The Walt Disney Company (NYSE:DIS), whose stock is up 27% (including dividends) over the same period. It’s amazing what happens when you make a $71 billion acquisition and ready yourself for the launch of Netflix-killer, Disney+.
Seriously, though, Netflix stock looks like it’s ready to explode after such mediocre performance the past three months. Here’s a couple of reasons why.
The Charts See Good Times
While Disney’s outgunned Netflix over the past three months, NFLX stock is starting to come on like gangbusters. In the past three weeks, Netflix is up 9.7%, 460 basis points better than its soon-to-be video-streaming competitor.
TradingAnalysis.com founder Todd Gordon appeared on CNBC’s Trading Nation July 2 and was quite bullish about Netflix stock.
“We’ve been in a long period of consolidation here in Netflix,” Gordon said. “We’ve been big-time rangebound here since, actually, the last two earnings cycles, and I’m wondering if we’re going to see, finally, a breakout in Netflix from this range.”
The range he’s speaking about is $340-$380. NFLX has traded in this $40-range since January. Now a couple of dollars away from $380, the trading specialist sees Netflix moving higher between now and its July 17 earnings announcement.
Gordon sees NFLX hitting $400 by July 19 — but not without an extra dose of volatility.
International Mobile Users Are Key
While I’m not sure this is a subject the company will address in its July 17 conference call after the markets close, I do think it bears consideration by current and prospective investors.
Earlier this year, I wrote that although the growth in the U.S. was slowing, Netflix’s international business was growing at a brisk pace.
And while some analysts saw the company coming up short in terms of the number of international subscribers it added in the fourth quarter — the estimate was for 7.3 million paid net additions internationally and it came in at 7.31 million, slightly ahead of the forecast — I was confident that as long as the company kept making more money from each subscriber, Netflix stock was going to be okay.
So, to read that Netflix’s international subscriber numbers are about to explode, I’m more confident than I was in January that NFLX stock is ready for its next leg-up.
Piper Jaffray senior analyst Michael Olson recently reevaluated the way it calculates Netflix’s total addressable market. In the past, Olson used the total number of fixed broadband households. But given more people around the world will subscribe to Netflix using mobile devices, Olson’s increased his calculation to include mobile users.
“When looking at current Netflix adoption as a percentage of internet or pay-TV households, we see international significantly lagging domestic, suggesting potential for dramatic international growth in the coming years,” Olson said in a June 28 note to clients.
Olson estimates that there are 575 million mobile-only international internet households outside China. Even if it only captures 5% of the mobile-only households, Netflix would add approximately 30 million international customers — an increase of 34% from the 88.63 million paid international subscribers in Q1 2019.
Netflix will continue to under promise and over deliver for owners of NFLX stock. I wouldn’t be surprised if it delivered strong earnings results come July 17.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
