Hot or Not? Trading Netflix’s Shares in 2021

June 29, 2021
by Nick Alexander, Market Analyst

Article Recap

Netflix is a well-established company that has a solid business model. However, trading its shares has its own characteristics.

If you’re reading this, then you’re more than likely to have a Netflix subscription or have a profile on someone else’s subscription. In 2021, we can confidently say that Netflix is one of the most popular forms of home entertainment. That’s to be expected from a company that serves 208 million paid users across more than 190 countries worldwide

Netflix has had many many peaks and lows. Recently, in the second quarter of 2021, we have been witness to some unexpected drops. One of the causes may be related to the streaming platform’s debt that has accumulated over the years. That begs the question, how does Netflix actually turn a profit? And is this one entertainment giant you should consider when trading US share CFDs?

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At the Beginning: A Time Before Netflix 

Netflix’s roots lie in August of 1997. Two serial entrepreneurs, Marc Randolph and Reed Hastings, decided to make their own rental service. Users with no video rental store nearby would order movies on the Netflix website, receive the DVDs via post. After watching them they post them back in the provided envelopes. With rentals as cheap as $4 per movie and $2 for the postage, Netflix saw significant growth that allowed it to change its rental model to a subscriber-based one in 2000.

Two years later, in 2002, Netflix went public on the Nasdaq. Under the ticker NFLX, the company began trading at $1 a share and an initial offering of 5,500,000 shares. Since then, it has been one of the best-performing stocks in the S&P 500. Following the introduction of video streaming in 2007, partnerships with consumer electronics like consoles and smart TVs, and later Apple devices, Netflix expanded from the US to Canada as well.

In 2010, Netflix stood atop the index. Despite disputes over splitting its streaming and DVD rental services and privacy concerns surrounding the sharing of users’ viewing habits with third-party entities, it reigned supreme until 2019

From the time it went public to now, Netflix’s membership count has increased from 600 thousand to 208 million, and stocks have risen from $1 to more than $500 per share, ending 2020 with a revenue of almost $25 billion. However, that has not been without its ups and downs.

The Road So Far

Woman using tablet computer and looking an online streaming platform.

In the last few years, Netflix has been growing at an even faster rate than Facebook and Apple. It reached new records of profit during the pandemic’s surge in subscribers, and has had even the ‘Nasdaq whale’, the Japanese company SoftBank, invest in it. But alongside all the highs, some of the biggest falls the company has suffered were just recently, with the most notable one being on 20th April 2021, when Netflix stock faced a downtrend of 8.76% hitting $501.44 a share

This decrease in stock price was largely attributed to the first-quarter results by NFLX stocks where growth in subscriber numbers had dwindled. It added only 3.98 million subscribers. This figure faded compared to the 15.8 million that had been recorded during the same quarter of the prior year. As a reason for the decrease, management has pointed to COVID-19 and its impact on the speed of the production process of TV shows and movies. Analysts had projected an increase of 4.8 million subscribers for the second quarter while the officially projected number stands at 1 million. However, with the release of new seasons of famous shows like “The Witcher”, “You”, “Money Heist”, and others, management appears optimistic about the upcoming quarter.

The Future is Bright

Although revenue estimates are $7.37 billion for the second quarter and $30.01 billion for the fiscal year 2021, they could be higher. This is due to the fact Netflix is no longer in debt. In January 2021, co-chief Reed Hastings announced that it would no longer “need to raise external financing for our day-to-day operations”. This statement is related to the fact that Netflix has a business model that required $16 billion to go into the film-making business full-time

Furthermore, now that it is a well-nurtured platform, Netflix is considering buying back stock in order to lift the value per share. Shortly after this became public knowledge, the NFLX jumped more than 12 per cent in trading after-hours. With its main revenue stream coming from subscriptions, exclusive deals, and original feature films across a wide variety of genres and languages, perhaps the improvement in stock performance will be nearer expectations when the Q2, Q3, and Q4 reports make their way to us. 

Trading Netflix Share CFDs

If you are looking to trade the NFLX share, then an option could be CFD trading via an established broker like Eightcap. Its vast library of 300+ financial instruments and tight spreads alongside top-tier customer service and global market opportunities allow you to trade at ease. You can begin trading with Eightcap now by signing up for a free demo account.

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Risk Warning: Margin trading involves a high level of risk and may not be suitable for all investors. You should carefully consider your objectives, financial situation, needs and level of experience before entering into any margined transactions with Eightcap, and seek independent advice if necessary.  Forex and Derivatives (margin trading) are highly leveraged products which mean both gains and losses are magnified.  You should only trade in these products if you fully understand the risks involved and can afford losses without adversely affecting your lifestyle (including the risk of losing the entirety of your initial investment).

All times are AEDT.