Streaming giant Netflix (NSQ: NFLX) has given investors some impressive returns over the past five years. Its share price has increased by over 5oo% in this time. This means, that £10,000 invested in this Nasdaq-listed stock in 2016 would have been worth more than £50,000 by now!
Netflix shares are going nowhere fast
I believe in studying past trends to understand where a company and its shares may be headed. And going purely by its investor returns, Netflix sure looks worth analysing. But the more closely I look at it, the more cautious I become. From the share price trend alone, for instance, it is clear that it has not risen consistently. In fact, over the past year, it has fluctuated a lot but not gone anywhere, for all this activity.
The reasons are not hard to find.
Appeal wanes as competition grows
Its appeal may be waning. I can speak for myself as a huge Netflix fan for years, who suddenly wonders if it may just be time to unsubscribe. It does not help that the fourth season of Stranger Things, one of its biggest shows, has been delayed because of the pandemic.
I am hardly the only subscriber to be falling out of love with the streaming service, though. In the first quarter of this year, it showed a sharp drop in net paid subscriber additions compared to the same quarter in 2020.
Competition is mounting too. According to Netflix CEO Reed Hastings, Disney is its number one competitor, with options like Disney+, Hulu, and ESPN+. Other streaming services like Amazon Prime, Apple TV, and HBO Max are also likely to be slowing down the service’s subscriber growth.
Three things to look for in the Netflix earnings report
So when the Netflix earnings numbers release later today, I would look forward to news on the additions made this quarter. I think realistically, they could be weak. Though, an upside surprise can be beneficial for its sensitive share price.
Second, I am interested in how it is growing outside of North America, like in the Europe, Middle East, and Africa (EMEA) region. This is its second biggest revenue source and net subscriber numbers here are growing faster here than in North America.
Finally, its headline financials, will of course, be of interest as well. Netflix’s revenues and net profits are both growing. This to me, indicates that the company is managing itself quite well even in an increasingly competitive market.
What I will do next
However, as an investor, I am interested in buying a stock I am sure will rise over time. And Netflix’s recent trends leave me wondering if it will indeed do so in the future. I will look at its earnings report closely for developments and also watch its share price movements. Also, I would look out for further news on its plans to diversify into gaming, an industry with a lot of potential. I will buy it if I am convinced that it can rise further. But that time is not now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon, Apple, Netflix, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.