Netflix (NASDAQ: NFLX) has been riding high these last few weeks, one of a bare few winners—if it's actually possible to win in a situation like this—of the coronavirus outbreak. With subscribers having little to do but Netflix and chill—potentially without the chill and potentially in the more conventional figurative sense of chill—for weeks at a time, the company has had something of a renaissance. In fact, Goldman Sachs just put out fresh estimates on the company, hiking their price target, but leaving the rating unchanged.
Goldman Sachs Looks Like a Netflix Fan
The word came out of Heath Terry, an analyst with the company, who kept his rating of “Conviction Buy” on Netflix. For those not familiar, “Conviction Buy” stocks are stocks that are considered particularly likely to outperform, and it's not given to very many stocks overall. Terry also raised Netflix's price target to $490, up significantly from its previous target of $430.
Terry noted that Netflix had already outperformed, gaining 31% since the fourth quarter of 2019 while the S&P dropped 16% in that same time frame. Plus, it was also one of the only companies seeing significant demand in that time frame. The company has added over 10 million net subscribers, and thus expects not only first-quarter results to be well ahead of initial guidance, but also expects that initial guidance for the second quarter will also be ahead of reports from FactSet Consensus.
Terry isn't alone on this one, either; Pivotal Research Group's Jeffrey Wlodarczak saw his price target raise similarly to Terry's, going from $425 to match Terry at $490. John Blackledge at Cowen & Co. saw the price target go from $425 to $445, a bit more conservative but still trending upward.
Netflix Takes Streaming Mountain By Strategy
Given that Netflix is currently worth more than Disney (NYSE: DIS)—Netflix is currently trading at $439.61 as of this writing, while Disney's share prices are down again to $101.32—at least for the time being, it's certainly got a lot of room to continue to outperform.
It actually has several advantages that its contemporaries can't claim. First, it's got current events on its side. This is a rising tide that's lifting pretty much every boat in the streaming video camp, as the United States' quantity of viewing online video on televisions has increased 109% in March 2020 as compared to the same time last year. The numbers for April will likely be comparably favorable.
Disney's saving grace in this time period has been Disney+, and it's already moved a couple of otherwise theatrical releases to the platform to actually get them seen and try and make some of the shooting budgets on potential blockbusters back.
However, Netflix has another critical advantage here; it's always been geared up for streaming and has been working accordingly. While it's lost some of its impact in the library part of things—content providers have not been blind to Netflix's meteoric rise upward—Netflix has been quick to pull out brand-new, original content, trying to cover some of the holes as big names like “Friends” depart the platform for use on other sites. So Netflix has been continuously bringing out fresh content...in an environment where fresh content is at a great premium. Subscribers make moves accordingly and go to where the freshest content is. If Netflix can keep the fresh content rolling along, then it stands to keep its subscribers interested, watching...and paying.
Everybody Has to Go Back to Work Eventually
There's one big problem in the Netflix projections, however, and it's the problem that's going to be the saving grace for a lot of businesses out there: like the header says, everybody has to go back to work eventually. While we've been able to sit around and watch Netflix until our eyes glaze over, our ability to engage in all-day Netflix binges is going to collapse. Just when is as yet unclear. We're seeing two camps clearly at war here; we're seeing traffic jam protests in Michigan—and the protests don't stop there, either—on one side and panicked governors ready to keep pounding the lockdown button until there's no longer a sniffle in sight on the other.
Netflix's success is somewhat a sign of the times. It's gained huge right now, and should hold those gains for a while. But as people start rediscovering the outside world, can it possibly hold on to most of those gains in the long term? That's going to be the biggest question to come out of this conviction buy.
5 Oil Stocks That May Not Survive the Current Crisis
What would you think of the long-term prospects of a business that paid you to buy their products? That’s an oversimplification of what occurred to the May futures contract for oil on April 20. The price for that contract sold for a negative price for the first time in history.
The crisis befalling the oil companies at this time can best be described as “only the strongest survive.” There’s just no way the oil companies can possibly handle month after month of rock-bottom oil prices.
The problem is almost comically simple to understand. There is a massively reduced demand for oil as millions of Americans are following mitigation orders ranging from social distancing guidelines to more restrictive shelter in place orders. At the same time, the market is trying to absorb the oversupply of oil that came from Russia and Saudi Arabia.
However, when the year started, things looked like it might be business as usual for oil producers. The U.S. economy was humming along and there was talk that the second half of the year might finally bring the boost to oil prices that many companies badly needed.
However, since the middle of February, the bottom has dropped out of the market in general, and oil prices have been one of the main sectors to feel the impact.
Initially, investors tried to remain optimistic. A month ago, investors thought that the economy might be reopening sooner rather than later. However, the exact timing of the reopening is about as fluid as a barrel of oil. And with it looking more likely that there will be more demand destruction at least through May, there’s very little to prop up the stock of any oil companies.
And that means that, in all likelihood, there will not be room left for some oil companies. We’ve highlighted five oil stocks that have a strong probability of not surviving the chaos surrounding the coronavirus and our nation’s response.
View the "5 Oil Stocks That May Not Survive the Current Crisis".