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Why Netflix Stock Rose 40% in the First Half of 2020

By John Ballard – Jul 7, 2020 at 6:46PM

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The top streaming platform impressed investors with its subscriber totals last quarter, and expects to keep audiences engaged with more content releases in the near term.

What happened

Shares of Netflix (NFLX 0.13%) climbed 40.6% through the first six months of the year, according to data provided by S&P Global Market Intelligence. The shares initially fell along with the broader market but then shot higher, as investors started to weigh the benefits for digital entertainment providers during the COVID-19 outbreak. 

Netflix reported a huge spike in new subscribers in the first quarter, and despite management's caution that the next few quarters may not be quite as good, investors clearly see this environment as a step change for digital entertainment.

A woman watching streaming video content on a laptop.

Image source: Getty Images.

So what

The first quarter numbers were exceptional. Global streaming paid net additions increased by 15.77 million, an acceleration over the fourth quarter's 8.76 million. Year over year, that represented an increase of 22.8% and helped send revenue up 27.6% over the year-ago quarter. 

Now what

Management cautioned that some of this growth will pull forward subscribers who would have signed up anyway in the next quarter. Also, Netflix will face a difficult year-over-year comparison in the third quarter, given last year's release of new seasons of Money Heist and Stranger Things

Even though COVID-19 has caused some disruption to new production, Netflix is already loaded with new content ready to launch through 2021. In the second quarter, Netflix launched a new comedy, Space Force. And in July, The Last Dance, co-produced with ESPN, will arrive on Netflix.

Netflix is guiding for revenue to grow 22.8% year over year to reach $6 billion in the second quarter. Paid memberships are expected to grow approximately 25.6% to 190.36 million. Overall, Netflix's ability to continue growing at robust rates in a recessionary environment is a large reason why the stock has soared so far this year.

John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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