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DOW   33,093.34
QQQ   348.40
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S&P 500   4,205.45
DOW   33,093.34
QQQ   348.40
10 Ways Entrepreneurs Can Navigate a Down Economy
How to Invest in AI's Fast-Growing Market (Ad)
Get the Most Out of Remote Meetings and Avoid Meeting Burn Out
A Woman Co-founder's Guide to Empowering Women in the Workplace and Advocating for Gender Equality
How to Invest in AI's Fast-Growing Market (Ad)
Open vs. Anonymous Employee Feedback — Which is Better?
PwC Australia sidelines 9 directors as leak of tax information investigated
The Largest Ever Technology Wave Is Coming! (Ad)
South African president appoints judge to oversee weapons-for-Russia inquiry
Drought-struck Barcelona quenches thirst with costly desalination
S&P 500   4,205.45
DOW   33,093.34
QQQ   348.40
10 Ways Entrepreneurs Can Navigate a Down Economy
How to Invest in AI's Fast-Growing Market (Ad)
Get the Most Out of Remote Meetings and Avoid Meeting Burn Out
A Woman Co-founder's Guide to Empowering Women in the Workplace and Advocating for Gender Equality
How to Invest in AI's Fast-Growing Market (Ad)
Open vs. Anonymous Employee Feedback — Which is Better?
PwC Australia sidelines 9 directors as leak of tax information investigated
The Largest Ever Technology Wave Is Coming! (Ad)
South African president appoints judge to oversee weapons-for-Russia inquiry
Drought-struck Barcelona quenches thirst with costly desalination
S&P 500   4,205.45
DOW   33,093.34
QQQ   348.40
10 Ways Entrepreneurs Can Navigate a Down Economy
How to Invest in AI's Fast-Growing Market (Ad)
Get the Most Out of Remote Meetings and Avoid Meeting Burn Out
A Woman Co-founder's Guide to Empowering Women in the Workplace and Advocating for Gender Equality
How to Invest in AI's Fast-Growing Market (Ad)
Open vs. Anonymous Employee Feedback — Which is Better?
PwC Australia sidelines 9 directors as leak of tax information investigated
The Largest Ever Technology Wave Is Coming! (Ad)
South African president appoints judge to oversee weapons-for-Russia inquiry
Drought-struck Barcelona quenches thirst with costly desalination

The One Question That Matters Most About Netflix Earnings

The One Question That Matters Most About Netflix Earnings

As Netflix (NASDAQ:NFLX) prepares to report earnings after the markets close on July 20, there’s a lot of noise surrounding NFLX stock. Some investors are focusing on the Delta variant of Covid-19 which is causing many countries to revisit strong mitigation efforts.  

Others are focusing on the company’s recent announcement that it would be expanding into video game content. This is a logical next step for the company. 

Still, others are looking at the new subscriber numbers. For a business like Netflix, subscriber growth is becoming a benchmark in the same way that same-store growth is for retail stocks. And it takes on even more significance as more competitors compete in the streaming space.  

All of those are newsworthy, and any one of them could cause NFLX to break out of its doldrums. I have to admit that I haven’t paid close attention to the stock and was surprised to find that it’s only up 4.6% in the last 12 months. This is despite the fact that the company has become synonymous with consumer activity during the pandemic.  

So I’ll stop teasing my lead and get to the question I think is most important: what about that debt? More specifically, is Netflix still on a path to not undertake any more debt? 

Why the question matters 

In January of this year, Netflix announced that it would no longer need external funding to finance operations. At the time the news sent NFLX stock soaring to its 52-week high.  


But that sentiment didn’t last long. Neftlix continues to trade in a range. And if bullish investors wanted something to be concerned about, it could be that the stock is showing a pattern of lower highs and lower lows.  

In the early days of Netflix, the idea that it was taking on debt was something of a non-issue. This was a textbook example of spending money to make money. And subscriber numbers were growing so rapidly, the company's high debt load was not the story. 

But Netflix is growing up. It’s unquestionably the leader in the streaming space. However, it’s also going to find eye-popping new subscriber growth more difficult to come by. Maybe a better way to look at it is the low-hanging fruit is gone. This means that investors are going to stop grading Netflix on a curve and start expecting financial results that are in line with an established market leader. 

So far, so good 

In the last 12 months, Netflix has generated free cash flow (FCF) of $2.4 billion. A good bit of that growth was due to the unprecedented circumstances that were brought about by the pandemic. This has helped Netflix pay down its debt even as it continues to spend money to create new content.  

However, for Netflix to become the self-funding company it wants to be (and that investors need it to be) that number will have to increase. The earnings report will be a barometer for that growth.  

What could go wrong? 

Netflix is still going to have to create new content. Whether that’s in new video games or Season 5 of The Crown. And that means the company will still be burning cash. In fact, the company expects to spend $17 billion on new content this year.  

But how long will investors who have looked at NFLX stock as their “ride or die” be willing to hang on if the company chooses to depress shareholder value by spending excess cash on new content? 

And on the flipside what will growth-minded investors do if Netflix begins to issue share buybacks? On the one hand, the company would be signaling that it’s a mature company. However, that might also take away some of the growth stock appeals that NFLX stock has enjoyed. 

Expect more of the same for NFLX stock 

If the whisper number means anything, it should be a good afternoon for NFLX stock. The company is expected to beat on earnings and post a sequential gain in revenue. But, in my opinion, investors would be better served by ignoring the shiny objects in the form of news stories that surround Netflix and just focus on the fundamentals.  

Netflix is now a young adult and with that comes the privilege of expectations. But that may come at the expense of short-term growth. I see NFLX stock as a Hold, but stranger things (pun intended) have happened.   

Should you invest $1,000 in Netflix right now?

Before you consider Netflix, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Netflix wasn't on the list.

While Netflix currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Netflix (NFLX)
2.2791 of 5 stars
$378.88+5.5%N/A40.74Moderate Buy$348.75
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Chris Markoch

About Chris Markoch

Contributing Author: Retirement, Individual Investing

Chris Markoch is a freelance financial copywriter with over five years of experience covering various aspects of the financial markets. You may find his writing a little different than other stock articles you’ve read. And that’s OK with him. Chris doesn’t have a traditional finance background. What he does bring to the table is a strong business and marketing background having worked for agencies that serviced Fortune 500 companies. With that in mind, he isn’t overly impressed with what companies say, and more focused on what they do. And because buyer behavior dictates so much of what happens with a stock, Chris always keeps the end consumer close in mind. Chris has been writing for MarketBeat since 2018.

Contact Chris Markoch via email at CTMarkoch@msn.com.

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