How to buy Netflix stocks in 2022
Netflix is a California-based entertainment platform and content production company. It was founded in 1997 by Reed Hastings and Marc Randolph to sell and rent DVDs by mail, but the company has since transitioned to a leading entertainment service provider, offering subscription-based online streaming from a library of films, television series, and documentaries.
The company has up to 204 million paid members in 190 countries that subscribe to stream its content via all kinds of internet-connected devices, such as smart televisions, television set-top boxes, digital video players, PCs, and mobile devices. Netflix still retains its DVD rental service by offering DVDs-by-mail membership services.
We created this guide to show you how to buy Netflix stock (Nasdaq: NFLX) and why you might want to, taking various fundamental and technical analysis factors into consideration.
How to Buy NFLX Stocks in 5 Easy Steps
1Visit eToro through the link below and sign up by entering your details in the required fields.
2Provide all your personal data and fill out a basic questionnaire for informational purposes.
3Click 'Deposit', choose your favourite payment method and follow the instructions to fund your account.
4Search for your favourite stock and see the main stats. Once you're ready to invest, click on 'Trade'.
5Enter the amount you want to invest and configure your trade to buy the stock.
Everything You Need To Know About Netflix
As a starting point, we take a more detailed look at Netflix as a company by exploring its history, business strategy, the way(s) it makes money, and how the stock has performed in recent years.
Netflix was founded on August 29, 1997, by Reed Hastings and Marc Randolph in Scotts Valley, California. They admired Amazon.com and wanted to sell something on the internet using the same model, so they came up with the idea of selling and renting DVDs by mail. However, after about a year, Netflix stopped selling DVDs to concentrate on renting them instead.
In 2007, Netflix expanded its business by introducing streaming media while retaining the DVD and Blu-ray rental business. By 2010, the company expanded internationally, introducing video-on-demand in Canada, Latin America, and the Caribbean. In 2013 Netflix started content production when it debuted the first series of House of Cards. By 2016, Netflix had expanded to more than 130 countries, and as of the time of writing in 2021, its content can be accessed from over 190 countries.
Netflix has made some acquisitions over the years. It announced the acquisition of Grauman's Egyptian Theatre from the American Cinematheque on May 29, 2020.
What Is Netflix’s Strategy?
Netflix’s initial strategy was to sell and rent DVDs by mail, but it has since abandoned DVD sales to focus on subscription-based DVD rental and online entertainment streaming services. The company offers unlimited streaming of movies and TV series on any internet-connected screen for a monthly fee, as well as DVD rentals for a monthly subscription.
Netflix does not offer any other type of content apart from movies, TV series, and documentaries, and a good portion of this content is created by the company itself. Netflix offers flat-fee unlimited commercial-free viewing with no pay-per-view or “free” ad-supported viewing. People can subscribe at any time, cancel their subscriptions when they want, and come back anytime they feel like it. This flexibility, which gives people the freedom to do what they want, is at the core of the business strategy.
How Does Netflix Make Money?
Netflix's primary source of revenue is its subscription fees for streaming and DVD rental services. Viewers have the option of choosing from three different subscription plans: Basic, Standard, and Premium. The Basic plan starts at $8.99/month, the Standard is $13.99/month, and the Premium is $17.99/month at the time of writing. As of the third quarter of 2020, Netflix claimed to have over 190 million subscribers worldwide, and you can do the math by multiplying this user base by the subscription fees.
The company breaks down its revenue from streaming services into four geographic regions:
- The US and Canada (UCAN)
- Europe, Middle East, and Africa (EMEA)
- Latin America (LATAM)
- Asia-Pacific (APAC)
In the 2020 fiscal year, streaming revenue from the UCAN region accounted for 46% of the company’s total streaming revenue, while those from EMEA, LATAM, and APAC regions accounted for about 31%, 13%, and 10% respectively.
How Has Netflix Performed in Recent Years?
Netflix's share price has grown steadily over the years, with a few bumps along the way. Over the last five years, the stock has added about +505.46 points. It has grown from about $93.26 in September 2016 to $598.42 as of Sept. 10, 2021. That is, it has made over 500% (more than five times the initial investments) in profits. So, if you had invested $2,000 about this time in 2016, your investment would have grown to over $12,000 for a profit of more than $10,000.
No doubt, the performance is very impressive, and Netflix’s focused business model enables them to have a large portion of their target market. But can this amazing performance be sustained in the years to come?
Where Can You Buy Netflix Stock?
Netflix stock trades on the Nasdaq Exchange, so you need a stockbroker that is registered with the exchange to buy the stock. You can buy the stock through any US-based broker or one of the major International brokers that have access to virtually all major stock exchanges around the world. While some of these brokers offer just the standard trading accounts, those with UK offices also offer shares ISA and SIPP accounts. Another option is to buy Netflix DR from any of the major banks in your country that has a share dealing arm.
Note that trading Netflix shares via a spread betting or CFD trading platform is different from buying the stock through an exchange-registered stockbroker. CFDs and spread bets do not offer you ownership rights to the company but they do allow you to trade (long and short) with leverage.
Netflix Fundamental Analysis
Fundamental analysis is a way of studying an asset to know its true value. For a stock, you study the company’s business to know the intrinsic value of the stock (and hence assess how it might perform in the future). Fundamental analysis is different from technical analysis that looks for specific patterns in share price movements to forecast future price movements.
Some key financial metrics are used when performing the fundamental analysis of a stock. Some of them, such as the company’s management and goodwill, are not measurable. Here, we’ll focus on the measurable ones, such as the P/E ratio, revenue, earnings-per-share, dividend yield, and cash flow.
A company’s revenue, which is typically presented at the top of its income statement, is the amount of money the company makes from the sales of its products or services before any costs have been deducted to get the profits (earnings).
The higher the revenue, the better, especially when compared to a similar period in the preceding year. Netflix’s revenue rose 24.0%, from $20.16 billion to $25.0 billion, for the 2020 fiscal year that ended December 31, 2021.
A company’s earnings refer to the profit recorded for the accounting period after all costs of doing business have been deducted from its revenues. It is often referred to as the “bottom line”.
As a shareholder, you only own a small portion of the company represented in shares. So, you should be more interested in earnings per share (EPS) rather than the total earnings. EPS is the amount the company earned for each outstanding share of its common stock.
For example, Netflix’s EPS is calculated by dividing its net earnings (after subtracting dividends paid to preferred stockholders) by the number of common shares outstanding. This metric is available on stockbrokers’ websites, so you don’t need to do the calculation yourself. Netflix EPS for the second quarter of 2021 was $2.97.
Netflix P/E Ratio
The price-earnings (P/E) ratio compares a company’s share price to its earnings-per-share and is calculated by dividing the current share price by the EPS.
For example, with Netflix’s share price at $598.72 and its EPS being $2.97, the P/E ratio would be about 201.59. Thus, as of September 2021, investors are ready to pay $201.59 for every dollar the company earns in profits.
Generally, companies with very high P/E ratios are considered overvalued. However, investors keep buying them in anticipation of huge earnings in the future.
Netflix Dividend Yield
Some companies distribute a portion of their earnings to their shareholders as dividends. It is one of the ways investors make money. Dividends are paid quarterly, semi-annually, or annually. When dividends are declared, the share price rises until after the ex-dividend date and then declines.
A dividend yield compares the total dividends a company pays in a year to its share price. For example, a company that pays out annual dividends of $2 per share when its share price is $50 has a dividend yield of 4%. You compare the yield with the interest rate to know if you are better off keeping your money in the bank. The dividend yield is seen alongside other financial ratios on the stockbroker’s website or any of the major financial websites.
As of September 2021, Netflix has never distributed its earnings to shareholders as dividends. Thus, its dividend yield is 0%. However, investors still make money from Netflix through capital appreciation as the share price has been going up.
Netflix Cash Flow
Cash flow refers to how money flows in and out of a business. It is one of the three financial statements you need to study when analyzing a company. You will see it beside the other financial statements in the financial section of the company’s information on a broker’s website or any of the major financial websites.
Focus on the free cash flow figure, which is the amount of cash or its equivalents a business generates after paying for major expenses necessary for running the business, including buildings, equipment, and other bills. It shows how much the company has to fund expansion, pay dividends, or pay down debts.
Why Buy Netflix Stocks?
The only fundamentals that Netflix falls down on are it not paying dividends and it having a very high P/E. However, when you consider that the stock is a leader in the streaming entertainment industry, you will understand why the P/E is high. What investors do not gain in dividends, they gain from capital appreciation.
These are some of the reasons you might want to buy Netflix stock:
- Netflix is a leader in entertainment content production and the most popular movie and TV series streaming service provider.
- The company is already exploring ways to expand its services, with plans to offer online video gaming and an online store for high-quality and limited-edition merchandise that is related to its popular shows and movies
- The company has already captured over 190 million active subscribers to whom it can market any new business
Expert Tip on Buying Netflix Stock“ Netflix stock can be volatile sometimes, so it is advisable to avoid placing market orders, which execute your trade at the best available price. The market is even more volatile during the after-hours. It’s better to use limit orders when placing a buy order. This way, you won’t overpay for the stock, as your trade would be filled at the price you want. ”- Emmanuel Ekwomadu
5 Things to Consider Before You Buy Netflix Stock
These are five things to consider before buying Netflix stock:
1. Understand the Company
While it may make sense to invest in a company you know and whose products you use — as suggested by legendary investors, such as Peter Lynch and Warren Buffet — this alone may not be enough. You need to study the company’s fundamentals to be sure that it is in a good financial state. That you have been streaming movies with Netflix does not mean you should invest blindly without finding out whether the company is making money.
2. Understand the Basics of Investing
You must learn the basics of investing before going feet first into the market. It will save you from a lot of stress. Learn about risk management, money management, and diversification. It may be wise to trade with a demo account for some time before trading with real money. When you eventually start committing real money into the market, test the waters with a small amount first.
3. Carefully Choose Your Broker
The first thing to consider in a stockbroker is the regulation status in your country of residence and the country where the stock you want is traded. In the case of Netflix, the regulator is the US Security and Exchange Commission (SEC). Being regulated in your country of residence can offer some protection from financial services compensation schemes in your country in case the broker becomes insolvent. Also, consider the broker’s trading commissions, trading platforms, payment methods, and customer support service.
4. Decide How Much You Want to Invest
The golden rules are to never invest more than you can afford to lose, and do not use borrowed funds to invest. As a beginner, stay away from leverage because it can magnify your losses. Determine the percentage of your capital you will allocate to Netflix and how you want to invest the money. You may want to practice dollar-cost-averaging by gradually scaling in as the price falls.
5. Decide on a Goal for Your Investment
What is your investment goal? You need to ask and answer that question. Knowing why you are investing and how long you intend to hold your investment will help you invest without emotions. Are you investing to build your pension fund for retirement? If so, what is your strategy, and when do you plan to sell? It could be when the price reaches a particular level, when the fundamentals no longer stack up, or when you reach a certain age. Whatever the goal is, write it down. You may also want to hold indefinitely and sell as you need.
The Bottom Line on Buying Netflix Stocks
In summary, Netflix is an entertainment platform and content production company that offers subscription-based streaming and DVD rental service for movies, TV series, and documentaries. You can buy Netflix stock through a stockbroker registered with the Nasdaq Exchange.
If you want to invest in Netflix shares right now, simply sign up for a stockbroker’s stock trading account, fund your account, select Netflix from the list of stocks on the broker’s platform, and place an order to buy the stock.
However, if you’re not yet ready right now, keep educating yourself by reading our other guides until you are ready to invest. Try “paper trading” using your stockbroker’s demo account to familiarize yourself with the broker’s trading platform.
Frequently Asked Questions
When investing in shares, investors can make money in two different ways. One of them is by receiving regular dividends from the company that owns the shares you bought. The more common way is through capital appreciation. While all stocks can gain in share price, not all stocks pay dividends.
Capital appreciation is a term investors use to describe a rise in the share price of a stock from the time the stock is bought to the time it is sold. That is, it is the difference between the purchase price and the selling price. For example, if you buy a stock at $50 and it rises to $70, it has appreciated in value. If you sell it then, you earn $20 in capital gain.
Also known as the ex-date, the ex-dividend date marks the cut-off day investors can purchase a stock to qualify to receive a dividend payment. It typically comes one business day before the record date. Buying the stock on or after the ex-dividend date means that the dividend will go to the seller.
The share price of a stock that declares dividends typically drops after the ex-dividend date because investors are no longer eager to buy the stock since they can longer qualify to get the dividend payment. Typically, the share price falls by the amount of the declared dividend.
The record date is the date the company checks its record books to know the investors that qualify to receive the declared dividends. To be able to qualify for the dividend, you must have bought the stock at least two business days ahead of the record date.
The three common financial statements that you can find information about a company’s business operation are the income statement, balance sheet, and cash flow statement. The income statement tells you about the company’s revenue and profitability over the accounting, while the cash flow statement shows you whether the company generated free cash during that period. The balance sheet shows you the company’s assets and liabilities as at the time it was prepared.