How to trade Netflix shares

Netflix – available in more than 190 countries – has completely changed the way we consume digital content. Discover the history of the world’s most popular streaming service and learn how to trade Netflix shares.

How to trade Netflix shares

You can also take advantage of Netflix’s share price movements with derivatives such as CFDs. Before you trade, you’ll have to decide which method is best for you. Remember that trading and share dealing or not the same – with trading you can speculate on rising or falling stock prices (go long or short), because you don’t own the underlying asset.

When you trade Netflix shares, you’ll also be able to take advantage of leverage. This means you only need to put down margin – also known as a deposit – to get exposure to the full value of your trade. Keep in mind that your profit or loss will be based on the full size of your position, which means it may be magnified when compared to your deposit. You can trade Netflix using leverage via a CFD account.

Netflix shares CFD trading

CFD trading is when you use a contract for difference to speculate on whether an asset’s price will move up or down. You exchange the difference in the asset’s price from when you open the position to when you close it. With CFDs you can buy (go long) or sell (go short).

Learn more about CFD trading

A brief history of Netflix

In 1997, Reed Hastings and Marc Randolph founded Netflix as a DVD-by-mail service. In the next three years, a lot of business development took place and, in May 2002, the company reached its biggest milestone as it launched an initial public offering (IPO) at $15 a share. At this time, the market cap was $309 million.

Due to uncertainty over the future of DVDs, the first few months as a listed company did not go well for Netflix. It traded in a downtrend until October 2002, where the share price hit a low of $4.85. It wasn’t until February 2004 that Netflix saw substantial recovery when it hit $71.96 per share. This was the same year that Marc Randolph retired from the company, leaving Reed Hastings as the chief executive officer (CEO).

By 2005, Netflix had already signed 4.2 million members and shares were trading at $27 after a stock split. Plans around streaming were announced in January 2007 but the share price still wasn’t recovering, closing at $3.25 for the same month. The next few years were spent building partnerships with consumer electronics companies and launching Netflix in various countries.

Due to the rapid expansion, the share price embarked on a slow incline, hitting $38 in July 2011. Netflix then decided to separate its DVD offering from its streaming service, meaning that customers had to use two subscriptions if they wanted to make use of both services. It lost 800,000 subscribers and the share price dropped from $272 in July to $71 by December. For the first time, Netflix put all its focus towards streaming.

By the end of 2012, Netflix was more than 33 million subscribers strong. It also earned its first award in 2012 – a Primetime Emmy Engineering Award. More Emmy Awards and an Oscar followed. In 2013, Netflix streamed its first original show, and invested heavily in its own content to protect its market share. This led to rapid share price growth, and a seven-to-one stock split in July 2015.

By 2016, Netflix was a global company available in all but four countries. The stock started a drastic climb to reach $391 per share in June 2018. By the end of May 2019, the Netflix stock price was $343.

Netflix shares: the basics

Netflix shares are listed on the US Tech 100 (.NDX) under the ticker NFLX-US. If you want to buy, sell or trade Netflix shares, you need to understand the details of the business, as well as the factors that impact its share price.

If Netflix’s profits or share price dips in the months to come, it may be because there has been an increase in competitors in the streaming channel market. Disney recently announced the launch of a streaming service, Apple still has plans to launch its offering in 2019, and Hulu and Amazon Prime are already raking in subscribers.

These organisations have lots of money to spend, less debt, and the ability to produce original content – a triple threat to Netflix’s success. Rumours suggest that Disney will offer subscription services at a fraction of the price, and Hulu recently announced it is cutting prices on its basic plan by 25%.

However, there has been a continuous uptick in Netflix subscribers over the last few years. If this trend continues, it could have a positive impact on the business’s revenue. Another factor that will impact revenue is how much Netflix can spend on new, original content, which attracts new subscribers. Revenue growth could increase stock demand and push share prices up.

Netflix has rewarded shareholders with solid returns over the past few years, but it still has not paid dividends. It does not look like it will start doing so soon, either – despite rising profits, Netflix still has a lot of debt.

Netflix key personnel: who manages the company?

There are eight members on Netflix’s management team:

Reed Hastings Founder and chief executive officer
Jessica Neal Chief talent officer
Kelly Bennett Chief marketing officer
Rachel Whetstone Chief communications officer
David Hyman General counsel
Greg Peters Chief product officer
Spencer Neumann Chief financial officer
Ted Sarandos Chief content officer

Netflix also has a board of directors that takes care of the needs and requests of shareholders.

What is Netflix’s business model?

Netflix’s business model is based on providing paying subscribers with TV shows, movies, documentaries and DVD rentals based on an extremely accurate personalisation algorithm. Its only source of revenue is the subscription payments it receives.

Netflix has three streaming subscription levels (basic/standard definition, standard/high definition and premium/ultra high definition). The business is also based on three segments:

  1. Domestic streaming: content to the US
  2. International streaming: content to countries outside of the US
  3. Domestic DVD: DVD-by-mail services

Netflix fundamental analysis: how to analyse Netflix

If you want to trade or invest in Netflix shares, it’s a good idea to start by conducting fundamental analysis. This means you must study Netflix’s financials, as well as certain external factors to estimate the ‘fair’ value of its shares, which may be different to its current price. One way to gauge share value is by using different ratios, including the price-to-earnings ratio (P/E), return on equity (ROE) and the relative dividend yield.

Netflix’s price-to-earnings ratio (P/E)

P/E ratio tells you how much you’d have to spend to make $1 in profit. It’s important to compare competitor P/E ratios to Netflix’s ratio, as a lower competitor ratio could mean that Netflix shares are undervalued.

To calculate P/E ratio, divide the market value per share by the earnings per share. To calculate earnings per share, divide the total company profit by the number of shares it has issued.

Netflix’s return on equity (ROE)

ROE is an indication of the return Netflix will make on its assets. Expressed as a percentage, ROE is calculated by dividing net income by stakeholder equity. A high ROE could be a possible indicator of undervalued shares. That’s because return on equity shows the income Netflix is generating relative to its shareholder investments.

Netflix’s relative dividend yield

Netflix’s relative dividend yield is the dividend yield of its stock compared to that of the entire index – in this case it’s the US Tech 100. First determine the dividend yield by dividing Netflix’s annual dividend by the current share price. Then, divide this figure by the average dividend yield for the US Tech 100. A high relative dividend yield could suggest that the shares are undervalued compared to competitor shares.

Log in to IG Academy to learn more about fundamental analysis and different ratios.

Sources

1 BitcoinCash, 2019
2 Geek Wire, 2018
3 Medium, 2014


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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