Netflix, Inc. (NASDAQ: NFLX) Rallies Higher On Anticipated Q4 Earnings Beat

January 18, 2018, 12:42 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Netflix, Inc. (NASDAQ: NFLX) has rallied higher in the past month by over 19% despite the absence of any new releases or reports, which implies that the rally can be solely attributed to bullish investor sentiment towards the company. Analysts and investors alike are supporting the streaming company’s rally as they expect the company to report earnings per share of $0.41, which is more than double its Q3 EPS of $0.15.

Article Summary

Netflix has rallied higher by over 19% in December.

Most investors and analysts are very bullish on the company.

The company faces major headwinds in 2018.

Here’s the trading report on NFLX.

Some analysts from Citigroup Inc (NYSE: C) even went as far as to pen a note stating that Netflix could be a possible acquisition target for Apple Inc. (NASDAQ: AAPL) this year. However, based on Apple’s acquisition history, it is quite evident that Apple might never consider buying Netflix as it is too expensively priced.

Despite the bullish sentiment pushing Netflix stock higher, the company faces significant headwinds, which could derail its rally in the coming year. One of the major headwinds facing Netflix is the entry of many other streaming services into the market such as Hulu, HBO and Amazon Prime video.

However, I believe that the biggest threat facing Netflix comes from the Walt Disney Co (NYSE: DIS), which recently announced that it was acquiring Twenty-First Century Fox Inc (NASDAQ: FOXA) in deal valued at $52.4 billion. Furthermore, Disney also plans to launch its own streaming service next year, which will put it in direct competition with Netflix.  

Other media companies such as cable networks affected by the Disney acquisition of FOX are also gearing up to offer stiff competition to the online streaming services. Cable networks have been affected negatively by the rising popularity of Netflix over the past five years as consumers prefer to stream shows instead of paying for cable subscriptions.

Many analysts are raising their price targets on Netflix to levels as high as $255 citing the fact that the company is likely to report much higher subscriber numbers in the fourth quarter. Many analysts are also looking at Netflix’s projected budget for original content in 2018 given that the company intends to spend up to $8 billion on producing original content.

There are many reasons that support the bullish case for Netflix. However, I would advise a lot of caution among investors given that the company currently trades at an expensive P/E ratio of 220.04.

Finally, it is not enough to know that a stock is likely to head higher, or lower this year. As an investor or trader, it is important to time your entry and exit points accurately in order to minimize risk and maximize your profit potential.

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