KEY POINTS

  • Following each of Netflix’s last two earnings reports, the stock fell.
  • The bears are focussing on the wrong figures, and business is picking up.
  • If you believe that Netflix has a bright long-term future, you should put money into the stock before the business update.

Netflix (NASDAQ:NFLX) is in a tailspin heading into next week’s second-quarter earnings report, should you buy Netflix stock now? The stock has dropped 70% in 2022, and it’s currently trading at levels not seen since 2017. Furthermore, the company’s last two earnings reports drove the stock significantly lower. There may be another trapdoor opening next Tuesday, but it could also serve as a wake-up call for Netflix’s stock price. There are two ways to approach the situation.

Assumptions

Before we go through how to invest in Netflix around this critical earnings report, let’s ensure we’re on the same page about the company’s long-term prospects. By the end of the first quarter, Netflix had 221.6 million subscribers. That’s 7% above year-ago levels but down from 221.8 million a year ago. Furthermore, management’s guidance predicted a second-quarter net loss of 2 million accounts. Many Netflix investors slammed “sell” on their keyboards and departed in astonishment after seeing such a dramatic change in direction from many years of continual growth.

New direction

However, in the previous few quarters, Netflix has taken a new approach. Previously, subscriber growth was the only factor that mattered, but this is no longer true. Instead of solely focusing on growing its subscribers, the business has refocused on profitable growth to encourage Netflix to drop some less-profitable accounts to improve margins on remaining subscriptions. As a result, subscriber growth has slowed, and lucrative subscription agreements have boosted earnings. Even though the second quarter’s subscriber count is uncertain, the positive trend should continue. For now, revenue guidance still predicts a 9.7% year-over-year increase in earnings.

Overall goal

Netflix’s goal, in the end, is to maintain a foothold in a global market for media-streaming services that is still in its early stages in many areas. The long-term aim is for digital streaming to completely replace broadcast, cable, and satellite television operations worldwide. At the same time, more nations will have access to fast high-speed internet connections and reliable digital currency systems required to operate a subscription-based entertainment platform.

Should you buy Netflix stock now?

The long-term goals are enormous, and Netflix should eventually reach a global market many times its current size. At the same time, each account is becoming more profitable. In this light, we believe Netflix’s business will provide shareholder-friendly revenue and profit growth for years to come. As a result, the current share price decline must be an isolated incident.

You have a choice

If you disagree with Netflix’s core premises, it is not a suitable investment for you. But if you accept that Netflix is comically mispriced and has a bright future ahead, you have two good choices.

  1. Buy Netflix stock right now and never look back. You made your decision regardless of whether Netflix rises or falls after the second-quarter update.
  2. Split your planned Netflix investment in half. Before the earnings report, spend the first half of your Netflix investment on some shares. The remaining half goes towards purchasing more Netflix stock next week or after.

Weighing options

The second option is to take the middle ground between current values and post-report changes. You may feel better doing it this way, especially if the stock falls again. Furthermore, once you’ve seen the real earnings report, you have the choice of keeping only half your money invested in that company. For long-term investors, flexibility is a wonderful personality trait.

Even after a full-throated Netflix investment before the report, it isn’t necessarily the end of the story. So depending on your investable cash and the reported data, you might want to double down on your Netflix purchase next week.

Whatever you do, don’t let this buying opportunity rush past you. Investing is a marathon, not a sprint, and Netflix will almost certainly be a winner in the long term.

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