Baird Upwardly Revises Netflix to ‘Outperform’

Baird Upwardly Revises Netflix to ‘Outperform’
March 25, 2020


The on-demand video provider Netflix Inc (NASDAQ:  NFLX) was upgraded to an ‘Outperform’ from a ‘Neutral’ rating by William Power, an analyst at Baird, citing that the company continues to record a surge in subscriber count in coronavirus infected zones. Since early February, the stock has appreciated by about 2%, while a majority of stocks have faced the brunt due to the outbreak of COVID-19 disease and the crude oil crisis. Notably, the appreciation began after WHO (World Health Organization) declared the outbreak of the virus as a global health emergency.

The current understanding is that as people are forced to stay at home, a majority of them will opt for streaming video services to kill time. While S&P 500 lost a massive 14.98% in a week, the stock almost trades flat. Relatively, this indicates a gain of ~15% in a week. Since the beginning of 2020, Netflix has gained around 3%, while the S&P 500 has lost 28.66%. After rallying by over $25 in the first two trading days of the week, the stock closed almost flat at $357.32 yesterday.

A week before, Credit Suisse analyst Douglas Mitchelson proved the above argument to be right through app data that showed a sharp increase in subscriber count in Hong Kong and South Korea, two major streaming markets of Netflix outside China, which are the worst affected areas by the pandemic.

In a note to clients, Mitchelson wrote: “The data in both Hong Kong and Korea present a strong case Netflix is seeing increased demand, as first-time app downloads inflected positively starting in January and continued into March.”

By studying the viewing pattern of prevailing customers, he concluded that Netflix continues to attract new subscribers. In this regard, the analyst points out data that indicates the doubling of downloads in Hong Kong since the beginning of this year, while in South Korea, downloads have increased by 33%.

Netflix viewer data also indicated a similar pattern in France and Italy. As everybody is well aware, a major portion of Italy remains under total lockdown for the past week, as the government extended previous prohibitions on business and travel. The surge in app downloads started in mid-February, with downloads increasing by 100% in Italy and 50% in Spain, compared with early February.

Mitchelson said the studies back the interpretation that the tech firm is gaining from “large-scale social distancing measures resulting in people being stuck at home with limited entertainment options.”

Based on the facts provided above, Baird analyst upwardly revised the stock of Netflix while raising the target price to $415, from $350 per share.

The company has surpassed earnings estimates in the past eight quarters. As the analysts argue, despite the negative effect of coronavirus outbreak, people will spend more time in front of the television, which aids online streaming providers. Nevertheless, it should be remembered that shares of Netflix trade at a PE ratio of 80.30. Additionally, the company does not offer any dividend. Therefore, we can expect the stock to remain bullish in the short-term.

The historical price chart indicates that the stock is trading above its 50-day moving average. Additionally, the Stochastics RSI indicator is also rising towards the bullish zone. Therefore, we are expecting the stock to rally in the short-term.

nflx - technical analysis - 25th March 2020

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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