Netflix Stock Price Forecast October 2021 – Time to Buy NFLX Stock?

With a YTD (year-to-date) gain of 22%, Netflix (NFLX) stock is the third best-performing FAANG stock of 2021. The stock has rebounded sharply from its 2021 lows after the good response to its “Squid Game.”

While Netflix has recouped its 2021 losses and its YTD gains are in line with the broader markets now, a section of the market has been apprehensive about the outlook. What’s the forecast for NFLX stock and can it continue its good run?

NFLX stock technical analysis

NFLX stock is looking reasonably bullish on the charts. It trades above the 50-day, 100-day, and 200-day SMA (simple moving average) as well as the short-term moving averages like the 10-day, 20-day, and 30-day SMA. In August there was a golden cross formation in the stock after its 50-day SMA crossed above the 200-day SMA.

The 14-day RSI (relative strength index) for Netflix stock is 66.5 which is a neutral indicator. However, its 12,26 MACD (moving average convergence divergence) gives a sell signal. The stock was trading lower in US premarket price action today despite posting earnings beat.

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Netflix third-quarter earnings

As is the norm, NFLX became the first FAANG name to release its quarterly earnings. Other FAANG stocks usually release their quarterly earnings in the last week of the month. Netflix’s third-quarter 2021 earnings were better than expected. The company reported revenues of $7.48 billion in the quarter which were in line with estimates. However, its EPS of $3.19 was higher than the $2.59 that analysts were expecting.

Netflix added a net of 4.4 million global subscribers in the quarter which was ahead of the company’s guidance as well as the 3.84 million that analysts were expecting. Notably, in its second-quarter earnings call the company had said that it expects to add 3.5 million net subscribers in the quarter. However, it ended up adding more than expected subscribers amid the popularity of “Squid Games.” The company had 214 million paid subscribers at the end of the quarter. The company expects to add another 8.5 million subscribers globally.

Where is the growth coming for NFLX?

Notably, for the last two quarters, APAC (Asia Pacific) has been the biggest contributor to the company’s net subscriber addition. In the third quarter, half of the new net subscribers were from the region. The company expects the fourth quarter to be the strongest in terms of content. While higher spending would lead to growth in subscribers, it would also lead to higher expenses and Netflix expects its operating profits to fall sequentially in the quarter.

Netflix stock forecast

Of the 47 analysts polled by CNN Business, 36 rate Netflix stock as a buy or some equivalent. Seven rate it as a hold while the remaining four rate the stock as a sell. NFLX has a median target price of $677.50 which is a premium of 6% over current prices. Its highest and lowest target prices are $971 and $342 respectively.

NFLX stock long term forecast

Over the long term, NFLX is a play on the pivot from Linear TV to streaming. While the competition in the streaming industry is also heating up and legacy media companies like Disney are also investing to ramp up their streaming business, the industry is also expanding. There is still a lot of growth potential for streaming companies. Citing data from Nielson, Netflix said that only about 28% of the screen time in the US is from streaming. Netflix accounts for only about 6% of the total TV time in the country.

According to Netflix, “We compete with a staggeringly large set of activities for consumers’ time and attention like watching linear TV, reading a book, browsing TikTok, or playing Fortnite, to name just a few.” The company highlighted how the engagement on its platform increased 14% when Facebook faced a global outage.

Also, in the long-term gaming would help Netflix add more value for subscribers. The company intends to bundle the gaming for free with the streaming offering even as it would look at alternate ways like In-app purchases to monetize the business. Analysts expect the company’s revenues to rise 14.7% next year, which would be the slowest topline growth in years.

Analysts are bullish on Netflix stock

Wall Street analysts were bullish on Netflix stock ahead of its earnings. Bank of America had reiterated its buy rating on NFLX stock yesterday. “The strength of recent content release and the market’s response increased our confidence in Netflix’s return to strong growth despite tough comps near term. We see the continuation of some of the highly viewed Netflix TV shows as likely drive subscriber growth in 4Q,” it said in its release.

Barclays also reiterated NFLX stock as overweight earlier this week. “We are positive on Netflix on account of (a) virtuous cycle of content/distribution scale and consumer inertia; (b) consequent pricing power; (c) international TAM; (d) management and execution quality; (e) longer-term operating leverage. While valuation does price in many years of growth, the company has beaten top-line expectations relatively consistently,” it said in its note.

Should you buy NFLX stock?

The subscriber growth for Netflix has come down. At the same time, it would have to spend aggressively on new content to fend off competition. While the company has a strong competitive advantage over other streaming companies, the current valuations do appear a bit stretched. The stock trades at an NTM (next-12 months) PE of 58.9x which looks rich.

That said, Netflix is among the best ways to play the streaming industry and is a good long-term stock to buy. However, given the high valuations and the impending tightening by the US Federal Reserve, the stock might trade on a weak note in the short term.

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