Shares of streaming media giant Netflix (NASDAQ:NFLX) have shown impressive resilience amid the coronavirus pandemic over the past few weeks. As stocks left and right have fallen off a cliff, NFLX stock briefly dropped, then rebounded quickly. Shares presently trade hands just a few points below their February 2020 highs.
In other words, while the market has crashed, Netflix stock has not. This impressive resilience in the stock can be chalked up to the fact that Netflix wins when consumers are stuck at home.
While the rest of the economy is spiraling thanks to the coronavirus pandemic keeping consumers locked up indoors, global “stay at home” orders actually provide a tailwind for Netflix, which has an opportunity to turn bored consumers into long-term subscribers.
More importantly, Netflix stock will sustain current strength. For three big reasons.
- Netflix will report a series of consensus-beating quarters in 2020. Thanks largely to coronavirus-related tailwinds, Netflix is positioned to report robust subscriber growth over the next three quarters. Historically speaking, as go subscribers, so goes NFLX stock.
- Netflix will further separate itself from the competition on the global stage. As the only dominant streaming service platform with global reach, Netflix will further separate itself as the world’s go-to streaming TV service, setting the company up for more consensus-beating quarters in 2021 and beyond.
- Netflix stock is attractively undervalued relative to the company’s long-term earnings growth potential. My long-term modeling suggests that Netflix has enough earnings growth potential into 2030 to warrant NFLX stock trading closer to $425 by the end of 2020.
As such, I fully expect NFLX stock to remain strong for the balance of the year.
Expect Strong 2020 Numbers for NFLX Stock
Netflix is well positioned to report strong subscriber numbers throughout 2020.
In the first quarter, Netflix will get a nice boost from “stay at home” orders going into effect globally in March. Such orders will remain in place in April and May, providing a huge second quarter boost. In the back-half of the year, lingering coronavirus-related tailwinds coupled with a formidable content slate and stronger network effects in international markets should propel strong subscriber growth.
Historically speaking, as go Netflix’s subscriber numbers, so goes NFLX stock. As such, if Netflix does indeed report strong subscriber numbers, then NFLX stock should go higher throughout this year as well.
International Dominance Will Increase
Of the big streaming TV services — Disney (NYSE:DIS) Plus, Apple (NASDAQ:AAPL) TV+, Amazon (NASDAQ:AMZN) Video, Hulu, and many more — Netflix has the largest international presence with the most robust international content slate by a mile.
The coronavirus pandemic is a global issue. It is keeping consumers home in South Korea, throughout Europe, and in parts of Latin America. In those regions, Netflix is the dominant streaming TV player. As such, bored consumers in those regions — where streaming TV penetration is much lower than in America — will sign up for Netflix during this period, not Disney+ or Apple TV+.
Over the next few months, then, Netflix has an opportunity to widen its lead over the competition in international markets. Such widening will set the company up for a strong 2021 showing, too, since subscriber growth in nascent markets begets more subscriber growth.
Netflix Stock Has Nice Upside Potential
Thanks to the company’s huge data and reach advantages in the streaming market, Netflix projects to remain the world’s biggest and most dominant streaming TV service for many years to come. Such positioning sets the company up to reap the rewards of accelerated connected TV engagement globally over the next few years.
Netflix will continue to grow subs at a healthy pace, increase average revenue per user through gradual price hikes, expand profits margins with scale, and drive huge profit and cash flow improvements.
I realistically see Netflix netting somewhere around $50 in earnings per share by 2030. Based on a 20-times exit multiple and a 10% annual discount rate, that equates to a 2020 price target for NFLX stock of $425.
Bottom Line on NFLX Stock
Netflix stock is a long-term winner showing impressive resilience during the coronavirus pandemic. This impressive resilience will turn into sustained strength over the balance of the year, as the company reports strong quarter after strong quarter.
Consequently, I wouldn’t be a seller of NFLX stock on recent strength. Instead, I’d hold shares here and now.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long NFLX.