How to Trade Netflix Q2 Results

on Jul 15, 2020
Updated: Dec 19, 2022

What does the future hold for Netflix? This week will be a determining milestone for the Entertainment Giant, as the Company gears up to release its quarterly earnings on Thursday 16th July.

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The stakes are high – Netflix (NFLX) began the second quarter of the year on an overwhelmingly positive note and has continuously raised the bar, week after week. Last Friday marked another all-time high as the Netflix stock closed at $548.73 per share, an increase of 8.1% on the day.

But even though the pioneering streaming service provider has had its moment to shine while people spent much more time at home than usual, things can take an unexpected turn.

Netflix Stock Performance in 2020

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While the stock markets seemed to be full of doom and gloom at the end of the first quarter due to the fast-spreading Coronavirus, traders turned their selection to a few companies whose services provided exactly what people needed when governments urged people to stay home.

Naturally, Netflix was among that list of ‘stay-at-home-stocks’. In fact, the leading streaming entertainment service impressed investors when it announced its first-quarter performance results, and set the bar high for the next few months.

Netflix’s ‘House Party’ function became a saviour for many people when asked to maintain social distancing. While the app mostly flew under the radar before 2020, it quickly became an excellent way to binge-watch favourite TV shows with friends without spreading any germs, by synchronising separate Netflix accounts and providing an on-screen chat feature.

With shows like Tiger King and The Last Dance premiering in the first months of 2020, Netflix House Party became more popular than ever!

Are Subscribers Turning Away from Screen Time?

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In Q1 alone, Netflix increased its subscribers by 15.8 million, exceeding the company’s predicted 7 million additional subscribers. Investors hope that the uptick in new subscribers has continued to increase in Q2. As lockdown orders began to ease in some parts of the world in recent weeks, however, we could see a change in consumer behaviour:

Will people still have an appetite for home entertainment services such as Netflix, or will they have had enough screen time to last a while?

Fun Fact: This is not the first time that Netflix has proven resilient in an uncertain environment. 

When DVDs were introduced in 1997, Netflix founders Reed Hastings and Marc Randolph saw an opportunity to revolutionise the home-video sales and rental industry. They admired the rising E-commerce platform Amazon and decided to create the first-ever online DVD-rental store.

Their initial business model offered competitive prices and a much larger selection of films compared to brick-and-mortar rental stores such as Blockbuster. Within a decade, Netflix branched into the online video streaming industry and became the leading provider of home entertainment, all while DVD rental sales began to fall.

The company soon went on to produce original content, much of which has grown to critical acclaim!

So, is Netflix a Buy or Sell?

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The future of Netflix is highly dependent on its subscribers. Many would argue that if people haven’t subscribed yet, they never will, and that it would take a miracle for Netflix to continuously reach its new subscription targets.

The company expects an additional 7.5 million subscribers in Q2 2020, and should the real figures fall short, traders may opt to short-sell the high soaring stock.

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