Netflix Inc (NASDAQ: NFLX) is inching up this morning ahead of its Q2 earnings scheduled for after the bell.
Expectations for the streaming giant’s second-quarter are sky-high, with the consensus calling for earnings to grow by an whopping 45% on a year-over-year basis.
More importantly, several experts, including Paul Meeks – the manager partner of Water Tower Research believes NFLX will not only meet but potentially exceed those estimates.
However, despite that confidence, Meeks urges caution. Netflix stock is already up 45% versus its April low – nearly double the S&P 500’s gain over the past three months.
“A lot of goodies [are] baked into this price,” he warned – and even a strong earnings report may not be enough to justify further any upside in the near term.
What investors must focus on in Netflix’s Q2 release
Paul Meeks expects Netflix to handily beat Street estimates for profit and revenue in its fiscal Q2. What’s he watching more closely, therefore, are other metrics that could signal long-term traction.
One key area: live events. “I’ll be looking for the viewership of the July 11th Taylor-Serrano fight,” he told CNBC in an interview today, adding continued traction following the company’s price hike in January should remain in focus as well.
Meeks also pegged the Netflix ad-supported tier as a “big deal”, saying momentum there should further offer insights into what the future holds for NFLX shares.
All in all, with Netflix Inc no longer reporting quarterly net subscription adds, investors must rely on alternative indicators like engagement with live content, pricing power, and ad-tier adoption to gauge strength.
What will drive future growth for Netflix stock?
Meeks believes the streaming company’s future growth will hinge on its ability to dominate live events and unscripted content.
One of its key legs to growth is going to be live events, including sporting events, and unscripted shows and celebrity interviews.
Over time, the market veteran expects NFLX to do very well in live events and, therefore, watches the management’s updates surrounding such events very closely.
Note that Netflix shares retain their consensus “overweight” rating among Wall Street analysts at the time of writing.
How to play NFLX shares after Q2 earnings?
While Netflix Inc could sink a little after Q2 earnings due to sky-high expectations and valuation concerns, Meeks said a potential pullback will actually be a buying opportunity for longer-term investors.
In fact, the Water Tower expert sees NFLX stock as a better pick than any other streaming name, primarily because of its content flywheel.
They have content so much more than everybody else that they get subscribers, and they have so many more subscribers than everybody else that they can create more content and keep flywheel going – not just in the US but abroad.
This virtuous cycle, according to Meeks, gives Netflix a structural advantage over competitors like Disney and Warner Bros.
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