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Why Are Netflix’s Earnings Optimistic?

Why Are Netflix’s Earnings Optimistic?

When it comes to Netflix, three things matter the most. Firstly subscribers, secondly margin, and thirdly content. Netflix only added one million new paid subscribers for the first quarter, which is an appalling number. If we look at the total number of subscribers in the first quarter, that number isn’t impressive either—it came in at 4 million. To put things in perspective, Netflix added over 26 million subscribers just in the first 6 months of 2020. Of course, that number was expected to be exceptional because of coronavirus, and no one was expecting Netflix to maintain that sort of growth this quarter. After all, Netflix consumers do have lives, and they do have other things to do rather than watching TV shows all the time.

But the biggest threat for Netflix is that it isn’t the only dominant player in town anymore. Competition has become intense, and the company needs to play hard. One thing that Netflix has done correctly, and it was very clear during this quarter, is improving its margin per user. This has improved because of its higher prices per user. But again, this is a double-edged sword given the fact that there is intense competition. If Netflix’s catalogue doesn’t improve substantially in the coming quarter, we could see a further setback for Netflix. That is because there is no loyalty among consumers in this part of the business–they follow good content and the best price.

Investors do need to be mindful that the current sell-off in Netflix’s stock price could be an opportunity and the reason is that the pandemic also put a stop to the production of new content. Now that the coronavirus vaccine has eased off some of those restrictive rules, we should see new content landing on Netflix’s platform. Consumers always follow content that they can binge watch, as mentioned earlier, and if the new catalogue grows, we could see a momentous shift in the next quarter’s earnings.

Oil and Gold

In the commodity sector, oil prices are still under pressure as investors continue to make sense of oil demand, which is likely to have been influenced by India’s dramatic increase of Covid cases. India has become the second-worst country in the world in terms of the pandemic, and it seems like that it will be a while before we can see the situation coming under control.

Traders will also be looking at the crude inventory data that is due later today, and the hope is not to witness any supply glut. After all, it was the last week’s crude inventory data that helped oil prices to move higher the last time.

As for the gold prices, softer dollar and risk-averse attitude among investors are helping the gold price. In addition to this, we are also seeing the yields falling as well, which is positive for the gold price—at least for now. But the most critical factor is the dollar index’s weakness. As long as the Fed doesn’t show much interest in tapering or shifting its narrative on the monetary policy, we are unlikely to see any strength coming into the dollar index. This means that gold prices may continue to move higher.