Trade Netflix Stock
Netflix was founded on the 29th of August 1997 by Reed Hastings and Marc Randolph. The company is headquartered in Los Gatos, California in the United States. Netflix started as a DVD rental-by-mail service, but over the years evolved into a world leading internet streaming entertainment service. As of September 2018, Netflix boasted close to 200 million monthly subscribers in over 190 countries.
The Netflix company survived the dot-com crash at the turn of the millennium, holding its Initial Public Offering (IPO) on the 23rd of May 2002. It is listed on the NASDAQ exchange in the Consumer Services category, where it trades under the ticker NFLX. Interestingly, Netflix is part of FANG (Facebook, Amazon, Netflix and Google), which are regarded as high-momentum, as well as the most traded stocks trading in the world.
Netflix introduced streaming in 2007, allowing its members to watch their favourite TV shows and movies on their personal computers. The video-on-demand shows became available on smartphones and other internet connected devices in 2010, the same year that the company started its global expansion.
By 2016, Netflix was available in more than 130 countries. While the company has had success in streaming licensed content, it has also witnessed huge success and popularity with its original shows, such as ‘Narcos’ and the ‘House of Cards’ series.
Netflix has not been aggressive when it comes to mergers and acquisitions. As of October 2018, the company has only made one acquisition; the 2017 buyout of Millarworld, a comic book publishing company.
The deal gave Netflix access to a rich library of superhero characters, and shareholders hope the company can leverage on these in order to boost their original content rollout in a consumer market still hooked on the superhero rush.
When Netflix went public in May 2002, it started at $15 a share, and a market capitalisation of $300 million. On its first day of trading, the stock closed at $16.75. The company has had two splits since the IPO: a 2-for-1 split on the 12th of February 2004; and a 7-for-1 split on the 15th of July 2015.
It was not a rosy start for Netflix’s stock though, because shortly after its IPO, it tumbled to its all-time low of $4.85 in October 2002. After this decline, it resumed its uptrend and by February 2004, it topped $74 a share, when it implemented its first stock split.
Netflix performed admirably during the 2008 global financial crisis, with its next big run coming in during 2010-11. The stock hit a top in the third quarter of 2011 and then entered a downtrend that ended in September 2012.
As Netflix’s international expansion gathered steam, investors reacted favourably to the stock, despite the high costs holding back earnings growth. The stock continued to advance higher and higher, almost hitting $700 in mid-2015 when the company implemented its second stock split. It hit its all-time high of $423 in July 2018, which then valued the company in over $184 billion.
As of October 2018, Netflix has never declared or paid cash dividends since it went public. But, the question is whether a non-dividend paying stock is a bad investment? Far from it; because Netflix has been one of the best performing stocks since it held its IPO.
Non-dividend paying stocks typically grow in value faster than dividend paying ones. Many non-dividend paying companies use their cash flows for other purposes such as acquisitions, share buybacks, growth investments and debt repayment.
However, in Netflix’s case, its high content costs and aggressive international expansion have constrained its cash flows. Still, high content costs are a necessary evil, as it enables the company to not only grow its subscriber base but also to maintain loyalty. Netflix has consistently outperformed the market over the years, which means investors should continue to enjoy higher valuations for the minor ‘expense’ of previous regular dividends.
How to Trade Netflix Stock
Netflix is a high-value stock that has produced outstanding value since going public in 2002. But, when trading Netflix stock, here are the factors you should consider:
- Legislative and Taxation Changes
After achieving US domination, international expansion has been at the centre of Netflix’s growth strategy. This, however, makes the company vulnerable to various legislative and tax changes that may impact its bottom line. In its international expansion, Netflix has placed a huge emphasis on content localisation, which means it will have to deal with government censorship in various jurisdictions and weak piracy laws in many locations. The company might also have to deal with inconsistent taxation that will likely affect its pricing and consequently, its profit margins.
- Competitor Performance
Having enjoyed the first mover advantage, Netflix has unsurprisingly attracted plenty of competition. The biggest of them all have been Amazon, Hulu and HBO; all massive names that are more than capable of giving Netflix a run for their money. It is important to assess the competitions’ performance in the internet TV and streaming market to establish if they are eroding the Netflix advantage.
- New Markets Penetration
Investors have always reacted positively to Netflix entering new markets. It is, therefore, essential to track news of the company’s expansion, or lack thereof, to trade the Netflix stock effectively. In this regard, China remains the major market that Netflix is yet to enter, and investors will always wait on, what is believed to be, the next swing factor for this high momentum stock.
- Periodical Earnings Reports
Netflix’s fiscal year runs from January to December, and the company releases quarterly earnings reports to keep investors up to date with the health of its business. When analysing Netflix’s earnings reports, the key metric is subscriber numbers as well as content.
Netflix is a high momentum stock that reacts to the above factors quickly. So, it is essential to analyse these factors for their expected short- and medium-term effect, rather than only the long-term impact.
Why Trade Netflix with AvaTrade Australia
- AvaTrade is a global, multi-regulated and award-winning broker. We always ensure that all of our trading services are transparent, and clients’ funds are held in secure segregated accounts.
- As with all other stock trading on AvaTrade’s platforms, you can long or short Netflix according to market conditions. You can short sell the stock when it is trending lower.
- Leveraged trading – Trade Netflix stock with a leverage of up to and enjoy higher profits with minimal capital outlay.
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Netflix Trading Main FAQs
- What should I know about Netflix?
Netflix started as a DVD delivery service, and was one of the first streaming video services. As of 2020 it is also engaged in creating its own content, and has nearly 200 million paid subscribers. Its stock has been one of the best performers over the past two decades, rising over 4,000% since 2002 until June 2020. The company remains the leader in streaming media as of 2020, but has seen a proliferation of competitors emerge over the past year, from the Disney+ service, to Apple TV+, to HBO Max. Netflix is one of the FAANG group of high growth tech companies.
- Is Netflix a good stock to trade?
Because of the continued strong gains in Netflix shares it has been a very good stock for buy and hold investors, but the strong upward trend make it suitable for all types of investors. The stock is subject to the occasional correction, and these have presented traders with an excellent chance to buy at lowered levels and profit from the resumption of the upward trend in shares. In addition to looking for these reversal types of trades momentum investors have been able to take advantage of the consistent upward momentum in the stock.
- What is the best strategy for trading Netflix?
There are a number of strategies that can be used to trade Netflix stocks. Some traders recommend using options to take advantage of price movements in the stock, but we think CFDs are the best way to speculate on movements in the shares. Because Netflix is so news driven many traders like to trade the volatility that emerges in the stock whenever Netflix is due to release earnings or subscriber numbers. Those who prefer using technical analysis can look for pullbacks in Netflix share price and then trade the reversal and rally to new highs.
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