Is Netflix Stock Experiencing a Bird Box Rally?

Few stocks were hit harder than Netflix (NFLX) during the fourth-quarter market correction. There was no good reason for it other than the fact that Netflix stock had been on a two-year tear with scant pullbacks prior to October—meaning it was “due” for some price correction. Now, NFLX is bouncing back with a vengeance, and Bird Box may be the reason for it.

Bird Box a Big Hit

Many of you are likely familiar with Bird Box by now, if the company’s viewership numbers are to be believed. The Netflix original movie starring Sandra Bullock in a post-apocalyptic society attracted 26 million U.S. viewers (and 45 million worldwide) in the first week after it debuted on the video-streaming platform on Dec. 21—the best seven-day showing for any Netflix film to date. Since Bird Box debuted, Netflix stock is up 35%.

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Coincidence? Partly, yes. The film’s debut, after all, coincided almost perfectly with the recent turnaround in the market. The S&P 500 is up 6.8% since Dec. 21, while the Nasdaq is up 9.3%. Still, NFLX has far outpaced those results, rising to its highest point in nearly three months. So perhaps there’s more to this theory of a Bird Box rally.

Bird Box is the rare movie these days that has generated a ton of buzz, inspiring a series of social media memes and late-night talk show parodies. But because it’s not in movie theaters, subscribing to Netflix is the only way to see it. Thus, the company expects strong subscriber growth numbers when it reports earnings this Thursday (Jan. 17).

Netflix estimates that it added 9.4 million new subscribers in the fourth quarter, which ended Dec. 31. For perspective, the company added just under 7 million global subscribers in the third quarter, to bring its current total to 137.1 million.

Subscriber growth is what drives Netflix; it’s the statistic analysts pay attention to most. If the company meets or exceeds its lofty Q4 projections, it will give credence to the Bird Box effect on that growth.

Of course, one hit movie can only get you so far, especially in today’s short-attention-span environment. In the big picture, what really matters is Netflix’s overall growth trajectory. Fortunately, that continues to look stellar. Analysts anticipate Netflix’s full-year 2018 sales to have grown 35%, with another 26% jump this year. Earnings per share likely more than doubled in 2018, and should expand another 55% in 2019.

As for subscriber growth, at least one analyst (Guggenheim Securities’ Michael Morris) expects Netflix to double its subscriber base by 2023 thanks mostly to growth in emerging markets like India, where the company recently launched original local-market content.

Netflix Stock Was Oversold

So the company is growing without interruption, and that means the three-month nosedive in NFLX stock—in which it lost nearly 40% of its value—was overdone, and almost entirely market-driven. As soon as the market righted the ship, NFLX was one of the first stocks investors have flocked to these last three weeks. That’s why, as of this writing, the stock is back above its 50-day moving average and in line with its 200-day moving average (see chart below).

Netflix stock has rallied with a vengeance since it released Bird Box on Dec. 21. Coincidence?We’ll see what Thursday’s NFLX earnings report brings—and I wouldn’t make any decisions on Netflix stock until that report comes out. If the company exceeds top-line expectations for a third straight quarter, it will confirm that all is well with the company, and could trigger another leg up in this so-called Bird Box rally.

Chris Preston

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Comments

  • Allan L.

    Nflx slightly missed earnings – there was a 4% drop last Friday in the share price.
    Would you hold your shares or would you sell them now?

    • Chris P.

      I believe NFLX is a great investment for the long term, and a 4% drop in one day doesn’t change that. Thanks for the question!

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