After shares of Netflix (NASDAQ:NFLX) bottomed in September, markets may start looking past the upcoming competition headed its way.
Apple (NASDAQ:AAPL) and AT&T (NYSE:T) are underpricing the monthly subscription Netflix in hopes of taking market share away. Yet Netflix is the incumbent in this space and will not sit back and lose.
On Oct. 16, Netflix reported a 31% jump in revenue, to $5.2 billion. Operating income doubled to $1 billion. But sequential global streaming paid membership growth is slowing. It rose to 158.33 million, up from 151.56 million in the previous quarter. Free cash flow is still negative at negative 502 million. ($551 million FCF negative after adjustments).
In Q4, revenue will grow 30% Y/Y with 9% streaming ARPU growth. Still, content is king and the company needs to take on more debt to pay for it. Apple and Disney (NYSE:DIS) will also spend billions to carry out the same strategy. But Netflix has to stay ahead to frustrate these firms. If its competitors back down and customers lose interest in the service, then Netflix's subscription volumes and rates will grow.
NFLX stock may have bottomed at $230 and as the market rebounds, it could gain enough buying momentum to lift the stock closer to the $300 level. Continue trading the stock on the dips, buying at the lows and selling on rallies.
