Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading
Buying Netflix stock at the beginning of 2020 would have proved a really shrewd move. At the start of the year, a lot of market analysts were predicting equity markets to rise somewhere just below 10%. The unique circumstances of 2020 and the COVID-19 pandemic were good for Netflix. Its share price high of $555.84 represented a very rewarding 79% year to date return.
The $450 share price mark looks to be a significant support/resistance level. While the stock trades above that level, the stock will continue to post a +40% YTD return to investors.
Netflix has benefited from being well-positioned to profit from the COVID ‘new-normal’. Its valuation is not based on current market conditions but on how things might look in the future. It’s an exciting growth stock and one that can be bought with some ease using an online broker. This review will show you how.
Netflix, Inc. is an American technology and media services company. Founded in 1997, it has been the main pioneer of subscription-based streaming. Its approach has been to develop a service with a broad appeal.
The Netflix offering includes animated kids’ shows, romantic comedies and lowbrow documentaries like ‘Tiger King’. The blend of third-party and in-house productions has proved popular. As of October 2020, Netflix had over 195 million paid subscriptions worldwide. More than 73 million of its customers are US based and recent years have seen the firm focus on expanding its global appeal.
The firm has never paid a dividend and has an ambitious P/E ratio of 76. The firm’s market capitalisation of $218bn is based on just $2.8bn of net income in the last 12 months.
This aggressive valuation is based on the firm being able to increase both its total client base and also the prices charged. Any news release on these two topics is likely to be followed by a period of price volatility.
In 2020, Netflix saw customer numbers increase from 167 million to 195 million. The enforced lock-down of large parts of the world offered Netflix a literally captive audience.
The firm’s primary listing is on the Nasdaq where it first listed in May 2002, with an initial public offering price of $15 per share. Netflix was the best-performing stock in the S&P 500 from 2010 through 2019. It trades under the ISIN code US64110L1061 and ticker NFLX.
To satisfy demand from international investors, the firm has also set up eight more listings on a range of global exchanges.
Analyst concerns that the firm will ultimately reach a capacity in terms of subscribers have been partly allayed by the firm managing to push through price increases without losing too many existing users. The monthly ‘churn’ of customers is approximately 2%, which is lower than most of its peer group.
The company’s decision to raise its standard plan by $1 per month, from $12.99 to $13.99, and its premium plan by $2 per month, from $15.99 to $17.99, is an essential part of Netflix’s long-term strategy.
The firm faces challenges from rival firms such as the new entrant Disney+. There are also some who question how permanent behavioural changes caused by COVID will be. The COVID pandemic is ironically also likely to pose challenges to the firm. Netflix’s loyal customer base is largely built on the quality of the streamed shows. Social distancing restrictions make producing high-quality new material logistically difficult to do.
Trading in Netflix using an online broker is a very straightforward process. The brokers have invested heavily in their platforms, which ensures they have very user-friendly functionality. There are also customer services teams on hand to assist traders whether they are novices or experienced.
One thing to establish right from the beginning is how long you intend to hold your Netflix position. If it’s likely to be more than 4–6 weeks, then you may want to consider buying the shares outright. The buy-and-hold incurs fewer daily fees.
Shorter-term trading fits well with trading in CFD format. These also offer the opportunity to sell-short or use leverage. These neat tools come with added risk and costs, but do appeal to some.
A more detailed breakdown of ways to find out which format is for you can be found here.
The first step towards buying Netflix shares is to develop a well-thought-out strategy. This can be as complicated or as simple as you like it to be. You may be looking to trade intra-day using software tools or waiting for an opportunity to enter into a long-term buy-and-hold position.
Good places to start your research include the broker platforms themselves. You’ll find analysts usually break situations down into two general areas.
When choosing a broker, the most important aspect is to use one that is regulated by a tier-1 regulator. A good place to start is looking for platforms that are licensed by the Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC) or the Cyprus Securities and Exchange Commission (CySec).
Online broker accounts have a similar feel to online banking. As you’d expect, with money being wired from one account to another, there are some forms to be completed.
Each broker has its own client on-boarding format, but most take only minutes to work through. Wiring funds into your account will be almost instantaneous if you choose to pay funds in via bank or credit card. Other payment methods are usually available.
With the admin completed, buying Netflix shares is as easy as finding the market on the platform, building a trade instruction and clicking a button.
If you’re trading using CFDs, you’ll be able to ‘buy’ or ‘sell’ Netflix shares. If your intention is to hold the underlying shares, then you can only buy and can’t use leverage.
After inputting the ‘amount’ of Netflix shares, you want to trade, you’re ready to go. Depending on whether you are using a desktop or handheld device, you are one click or one tap away from putting on a trade.
Before you open your trade, there is an opportunity to input automated instructions to close your position at certain price levels. ‘Stop-loss orders’ and take-profit instructions are risk management tools, which can be added prior to or indeed after trade execution.
Even the experts take time to double-check their trading instructions before giving the final order to trade.
Brokers have different names for the button that gives the final order to trade. ‘Open Trade’ or ‘Place Oder’ are popular terms and once hit, your cash balance will be debited, and you will be holding a position in Netflix.
The value of the holding will fluctuate in line with the market price. Monitoring the performance of your NFLX holding will be possible via the ‘portfolio’ monitor. It will also be possible to close out of your position from this part of the site.
There is intense competition between brokers and this feeds through as improved T&Cs for account holders. Each broker offers something slightly different. As demo accounts are free to set up, it is recommended you try a few out to find the best fit.
Broker comparison tables such as the one found here are a useful resource.
Finding the right broker for you is perhaps the most important part of the process. While you can buy Netflix stock with most brokers on the market today, not all brokers are created equal.
If you're ready to buy Netflix shares, you'll need to use a broker that is FCA regulated, has low trading commissions and a reliable trading platform. Finding one can be an arduous and daunting task, which is why we've hand-picked favourites that tick all of these boxes to help you get started.
It’s worth setting up demo accounts with a few brokers to see which suits you best.
It’s important and vital to keep on top of the transaction-based costs and fees associated with trading. Financing charges and commissions can add up over time. They’ll also play a part in determining if you trade using CFDs or Shares.
Most good brokers offer fee tables so that you can run checks and determine what approach is best for you.
|Inactivity Fee details||$10 per month. After 12 months||$10 per month. After 3 months||$10 per month. After 3 months|
|FX Conversion||Yes – on non-base currency trades||Yes – on non-base currency trades||Yes – on non-base currency trades|
|Fund withdrawal fees||Yes – $5||Applied on some payment methods||Yes – $5 -$100|
|Trading commissions||Included in spread||Included in spread||Included in spread|
|Overnight Financing||Yes, on CFDs||Yes, on CFDs||Yes, on CFDs|
On 10th July 2020, Netflix became the world’s largest entertainment / media company by market capitalisation. It did so on the back or relatively modest profits.
Some tech firms don’t even make a profit, so the fact that Netflix breaks even is a positive. The valuation is based on future rather than current earnings. The position Netflix has in the entertainment market is strong enough to ensure the firm has many global backers.
If buying some Netflix shares is something you’d like to do, the good news is that the process of actually booking a trade is a very straight-forward one.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .