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Andrew Willis: Netflix (NFLX) delivered an earnings surprise last week with a surge of new subscribers that more than doubled its guidance for the quarter. But its earnings were only 1 per cent ahead of our projections and we can’t help but wonder what’s going to happen when the lockdown is over.

Sector analyst Neil Macker says that the subscriber beat was a ‘pull-forward’ of long term growth, meaning maybe all of this was more or less expected—just not this early. With other heavyweights like Disney and HBO to contend with, it’s hard to see how the price of the stock reflects its potential. 

We’re willing to give Netflix a ten-dollar upgrade on its fair value, which is already more than doubled by its current trading price. But double the subscribers now doesn’t mean it’s a sure thing forever. After all, the company no longer provides guidance for domestic and international net subscriber additions, so it is hard to predict.

Some numbers and comparisons can help though. Look at how the subscriber growth for this quarter, even with an audience that was literally captivated, wasn’t able to beat new subscriber levels from 2018.

Netflix may need to get some serious growth in international markets to make up for investor expectations. That being said, this one-star stock may surprise and steal the show in a streaming world that is only just beginning to steal the show in Hollywood.

For Morningstar, I’m Andrew Willis.