Goldman Sachs raised its price target on Netflix, Inc. (NFLX) to a "Street high" $670 on Friday, expecting the streaming entertainment giant's second quarter profits and revenues to match or exceed the first quarter's outstanding results. Wall Street consensus on Netflix stock has moved steadily into the "Moderate Buy" column so far in 2020, with 22 "Buy" and 9 "Hold" ratings highlighting an increasingly bullish outlook. However, four analysts are still recommending that shareholders sell their positions.
Netflix is having a great year, with shares lifting 59% to an all-time high above $500. This outstanding performance caught many analysts by surprise because The Walt Disney Company's (DIS) Disney+ service, released in November, was supposed to foster a highly competitive environment in which customers would be forced to pick and choose subscriptions within a limited budget. The pandemic tossed that theory out the window, forcing tens of millions into extended at-home stays that have underpinned all sorts of digital entertainment.
In addition, worldwide movie, television, and theatrical production has slowed to a crawl, with the surging epidemic forcing Hollywood, Vancouver, Bollywood, and other production centers to shut down or take on the added costs of isolating cast and crew for months at a time. Movie theaters have also faced massive headwinds in their efforts to reopen, even with limited capacity, forcing the entertainment-seeking public to look for alternatives.
Netflix also benefits from a vast content library that virus-weary subscribers can tap for months or years, if necessary. In addition, the company produces content worldwide, allowing it to grow offerings in parts of the world less affected by the pandemic. Many of these "foreign" productions have better scripts and production values than the endless string of youth-oriented comedies and dramas, allowing the company to keep subscribers glued to their screens.
Netflix Long-Term Chart (2002 – 2020)
The nascent mail order rental service came public in 2002, posting an all-time low at a split-adjusted 71 cents in October. The subsequent uptrend stalled above $5.00 in 2004, marking a high that wasn't challenged until a 2008 breakout that failed after adding just 16 cents. The stock held up well during the economic collapse, dropping to a 52-week low, and broke out above resistance in the first quarter of 2009.
Rapidly increasing internet speeds underpinned a strong uptrend that topped out in the mid-$40s in 2011. It took two years to complete a round trip into that level, ahead of a breakout that eventually lifted Netflix into high-tech leadership. However, volatile downdrafts interrupted positive price action repeatedly into June 2018, when the powerful uptrend ended just above $400. The stock lost nearly 200 points in the next six months, finding support in December near $220.
Higher lows in September 2019 and March 2020 set the stage for an April 2020 buying impulse into 2018 resistance. Netflix stock broke out immediately but failed to make much progress until June, when price took off in a sustained uptick that has now mounted the $500 level. Curiously, accumulation readings have lagged price action since the middle of 2019, but that hasn't stopped the stock from holding firm at all-time highs.
Two technical factors bode well for even higher prices in coming weeks. First, the monthly stochastic oscillator crossed into a long-term buy cycle in February and has held that level without lifting into extreme readings (red lines) that have generated bearish crossovers in prior years. Second, the breakout still hasn't reached resistance at the 1.618 or 2.000 Fibonacci extension levels. Not surprisingly, Goldman's Street-high call lies just above the 2.000 extension, marking a logical target that Netflix could exceed in the third or fourth quarter.
The Bottom Line
Netflix stock has booked impressive 2020 returns as a result of the pandemic and is showing few signs of topping out or rolling over.
Disclosure: The author held no position in the aforementioned securities at the time of publication.