Online streaming giant Netflix is one of the top internet stocks across the globe. Shares of the media company have soared 125% in 2015, 13% in 2016 and 55% in 2017. The stock is already up over 80% in 2017. Shares of Netflix peaked to an all-time high of $423.21 last month and have since declined after it released its Q2 2018 earnings results.
Why Did Netflix Shares Decline Recently?
Though Netflix beat earnings estimates, it reported Q2 revenue below analyst projections. Netflix also added 5.2 million new subscribers in the second quarter, below estimates of 6.2 million in Q2. In the United States alone, Netflix added 700,000 subscribers which were below the estimated figure of 1.2 million.
At the end of Q2, Netflix had 130 million subscribers, an increase of 25% year-over-year compared to 104 million subscribers at end of the second quarter in 2017.
Has User Growth For Netflix Started To Decline?
In the last seven out of the nine quarters, Netflix has been able to beat user forecasts. The last time Netflix reported user subscription below estimates was in Q1 2017 when it added 5 million users, compared to a forecast of 5.2 million. What’s more, Netflix expects to add 5 million subscribers in Q3 including 650,000 in the United States. This indicates an addition of 4.35 million global subscribers.
Netflix has stated that its subscriber base can grow between 60 million and 90 million in the United States, indicating an addition of approximately 30 million subscribers at the high end of its projection. After significant expansion, Netflix now has approximately 57 million domestic subscribers. With this comes the hiccup – it has practically no room to grow subscribers if we take the conservative estimate of 60 million subscribers.
The company is also facing challenges by bigger players with more cash in hand such as Amazon Prime and Amazon Studios. Further, Disney is looking to launch its streaming platform in 2019.
Key Drivers For Netflix
Yes, Netflix’s stock has been negatively impacted post Q2 results. But Netflix’s growth story is far from over. The company expects revenue to grow by 33.6% in Q3 with earnings growth of 134%. Netflix again expects to add 5 million subscribers in Q3.
Netflix can approximately double its subscriber base to 250 million over the next 10 years, given the total available market. Netflix currently has 300 million user profiles across 450 million devices.
There are growth opportunities in emerging markets like India where Netflix has about 5 million subscribers compared to the market leader Hotstar which has 75 million subscribers. The Indian online streaming market is estimated to grow by 35% year-over-year. Netflix has been targeting market share by generating original content.
The first two seasons of Narcos scored massive hits while Sacred Games has also been popular among the Indian audience. Production on the first Arabic series Jinn has reportedly begun. Netflix will be spending around $8 billion in original content for 2018.
Though there are concerns over Netflix, the company’s revenue is still estimated to grow by 35.6% in 2018, 24.8% in 2019 and 21.6% in 2020. Comparatively, its bottom line or earnings is estimated to grow by 116% in 2018, 61.9% in 2019 and at a CAGR (compound annual growth rate) of 62.5% over the next five years.
Does This Provide An Opportunity For Investors To Buy Netflix?
Although Netflix has generated spectacular returns over the last few years, potential investors might be wary about entering at current levels. However, the recent stock decline post Netflix’s quarterly results indicate that the stock is trading at a discount of over 10% to average analyst price targets of $377.60.
Out of the 40 analysts tracking Netflix, 60% of analysts (or 24 analysts) recommend a “buy” while 35% recommend a “hold” and only 5% recommend to “sell” the stock. Netflix has a high 12-month price target estimate of $503.
Stock Market Turbulence: 4 Ways To Mentally Prepare
From October 1 to November 23 last year, the NASDAQ fell nearly 14% and the S&P 500 fell 10%.
Then over the last week in November, the S&P 500 rebounded 5%.
Then it tumbled again, and wiped out its gain for the whole year.
Feel whipsawed? Sure. We all do. It’s in our brains. The financial markets are only a few centuries old, but our brains are much older — and they were “built” by evolution, not by Apple or IBM. When fear strikes, as it does during a downturn in the market, our evolved instincts tell us to run, same as we would from a fire, a flood or a predator. Applied to the stock market, our primordial urge is to sell, and preserve what we have.
But that urge is hopelessly wrong. It’s a false alarm, and a disastrous “choice” that can dwarf your portfolio forever. Both naïve and ostensibly savvy investors alike may obey that primitive instinct, cash out their portfolios with sighs of relief, and live to rue their decision. The day will come when the market comes roaring back, making new highs, as they cling to the proceeds of unwise sales, wondering when to buy back in — usually too late. There’s a very expensive lesson in this: the people on the other side of those trades were wiser.
In Why Smart People Make Big Money Mistakes, Gary Belsky and Thomas Gilovich relate the cautionary tale of a broker’s experience in the 1987 stock market turbulence. Over a hundred young clients called to sell all or part of their portfolio, hoping to stanch the bleeding. But two old hands over 80 called to buy. Experience beats intelligence.
How can we still our throbbing hearts as markets reverse or even tank, so we don’t sell in haste and regret it during the next market boom? Use the cultural wisdom already downloaded into your consciousness to mentally prepare for stock market reversals:
1. Listen to FDR.
“The Only Thing We Have to Fear is Fear Itself,” Franklin Delano Roosevelt said in his 1933 inaugural address. FDR was speaking to the nation about The Great Depression, then at its depth after the 1929 stock market turbulence. Master politician, master crowd psychologist, and member of the wealthy elite, FDR knew his history. He knew that prosperity would return in time, as part of the natural ebb and flow of markets and economies — if the sociopolitical consequences of the Great Depression could be held in check. In 1933, as in any market reversal, fear was his worst enemy.
2. Heed an ancient adage — and Lincoln.
“This too shall pass” is a renowned Persian, Hebrew and Turkish adage often misattributed to the King Solomon in the Bible. According to Sufi poets, the phrase was a passage etched upon a king’s ring. It was there to make him happy if he were sad and, sadly, to caution him that joy, too, is fleeting. But the most compelling recital of the phrase comes from President Abraham Lincoln: “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’ How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!”
3. Think like a mathematician.
“Invert, always invert,” said the mathematician Carl Jacobi. Mathematical inversion is a favored thinking tool for both Charlie Munger and Warren Buffett. It flips life’s problems up, down, around and backward until the answer presents itself unbidden. Buffett says, “It’s like singing country western songs backward. That way you can get your house back, your auto back, your wife back, and so forth.”
How can inversion be applied to market downturns and crashes? Invert the naïve impulse to sell into an informed decision to buy. Recognize that if you are wise enough to hold onto stocks for the long term, the price anyone would pay for them in a downturn is irrelevant. If you have wisely stored a cash hoard in anticipation of a downturn, you are not obliged to sell stocks in a down market to harvest cash. And because you are free to buy, the stocks are on sale! Buffett teaches: “Be fearful when others are greedy, and greedy when others are fearful.” But take caution not to buy too soon. Wait until the market bottoms, or in Wall Street parlance, “Don’t try to catch a falling knife.”
4. Shakespeare was right.
“Cowards die many times before their deaths, The valiant … but once,” wrote William Shakespeare. If you fear the market and keep most or all your money in cash or cash equivalents, inflation will, in the fullness of time, destroy your cash hoard. It’s financial death by a thousand inflationary cuts. Though the nominal two percent inflation rate is hardly noticeable day to day or even year to year, compounded over six decades, a dollar is only worth a dime.
If you are wise enough to invest, not play the market or buy and sell, but be brave and hold a steady course through storms and routs, diversified and shielded from taxes in a retirement account, you will find yourself a hero at retirement. And, moreover, to your survivors when you are gone.
Investing In Stocks: 5 Rookie Mistakes To Avoid At ALL COSTS
There’s something about capital markets that captivates everyone: Some think stocks are an easy way to make a quick score. Others, on other hand, liken stock to gambling.
And then there are some who just don’t have a clue about stocks at all.
(Fret not, #WealthGANG, we’re here to serve!)
But why is the stock market so fascinating? What causes people to be completely overawed by it?
Despite the many myths, it is extremely easy to trade in the markets; you can actually get started on your smartphone for less than $10.
But to trade stocks successfully? Now that’s another story—despite what those in-their-20s Instagram crypto money managers and scammers want to tell you.
For all the myths, biases, (mis)beliefs and misconceptions, you can still hedge your bets by following a disciplined blueprint. In this case here, we will share with you what not to do.
Here are X common investor mistakes to avoid at all times.
Mistake #1: Thinking you can make a quick buck from Wall Street
This is probably the single biggest misconception about the stock market. Investor legends like Warren Buffett always maintain you need to invest over a long-term horizon to book big profits.
And even if you have stories like the ‘Teenage Bitcoin Millionaire,’ trust us on this one! They’re the exception, not the rule.
Mistake #2: Investing on impulse
In other words, decision to enter the stock market’s based on an impulse. There’s no proper entry strategy and no exit strategy.
This is not how an investment decision should be made. Every investor should realize that investing in the stock market is a long-term play—it’s definitely NOT a get-rich-quick scheme.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Mistake #3: Following the hot tip!
Investors are all on the lookout for hot leads and stock market tips. But in reality, there aren’t any. This mistake is exactly how the “Wolf of Wall Street”got people onboard with his schemes.
Even if someone does have a hot tip, you have to watch out for human nature: People may skew positively towards stocks they own—and negatively towards the ones they don’t.
The reality is this: There are qualified analysts who spend all day researching market trends and metrics.
Investment managers and brokers then share these analyses with premium clients. Much more credible info, yes. However even after receiving this analysis, there is no guarantee the investor will see an ROI.
Warren Buffett is a firm believer that investors can grow wealth by just replicating the indices instead of looking for multi-baggers and stocks that are expected to crush the market.
“If stock market experts were so expert, they would be buying stock, not selling advice.”
Norman Ralph Augustine
Mistake #4: “Buy/Sell Strategy”
This is probably the biggest misconception of all. Many investors, impulsively, end up buying a stock just because they see the price surging. (Again, think Bitcoin in December.)
As the price continue to climb, they’ll sell the stock and make a huge profit. The so-called Buy-Hold-Sell Strategy
But that is not how the stock market works. (Buffett’s mantra is buy-hold-and don’t watch too closely.)
If you do buy a stock, hold it for some time and then sell…you don’t have any guarantees the stock will rise.
A better play—aside from Buffett’s, obviously—is the borderline cliched “Buy Low/Sell High” strategy. In this strategy, an investor buys a stock on the downslide instead of when the price is rising.
All the investor has to do is hold the stock until a price correction occurs. If the stock is fundamentally strong, the price will increase. This will be the time to sell it off and earn a profit.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
Mistake #5: No clear investment objective
Every investor should define, clearly, what his or her investment goals are.
The rule of thumb of investing is the higher the risk, the higher the return. So if the market return is less, then—needless to say—the risk involved is deemed less.
There are two forms of securities, generally: Stocks (equity) and bonds (debt).
Equity stocks tend to have higher risks associated with them. However, there is a tremendous potential to earn capital gains from equity shares—but with the caveat that you should be prepared to lose your investment
Bonds and fixed income instruments are relatively less risky than equity shares. They offer periodic returns in the form of interest but are still prone to market risk.
A short-term investor looking for minimal risk is better off buying treasury bills and government securities.
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch
10 Stock Terms Every Newbie Investor Should Know
Investing in the financial markets can seem quite tricky. There are far too many stories where people tried to play the stock market without much success. When the markets are on a roll, everyone wants a piece of the pie.
Here are 10 terms every investor cannot afford to miss.
The market capitalization of a stock is simply the total number of outstanding shares multiplied by the share price of the company. Companies are generally differentiated on the basis of market cap.
Small cap companies generally have a market cap of between $300M and $2B, while mid-caps are between $2B and $10B. Any company with a market cap over $10B is considered a large-cap. While small-cap and mid-cap stocks have historically outperformed large caps, they are also way riskier.