Of all the industries that have been transformed during the pandemic, arguably no sector has changed more permanently than video entertainment.

Over the last year and a half, nearly every large media company has launched its own streaming service, including Disney+ (DIS -1.48%), Peacock from Comcast, HBO Max from AT&T, Paramount+ from ViacomCBS, and Discovery+ from Discovery Communications, as well as AppleTV+.

In other words, streaming is going mainstream, and pressure is building on movie theater operators and the pay-TV ecosystem like never before. That will significantly accelerate the shift to streaming and create a greater pool of customers for all streaming services. But the company leading the transition has been mostly ignored by investors in recent months.

Netflix (NFLX -0.17%), the clear industry leader, has traded sideways for the last nine months, while other streaming stocks like Disney, ViacomCBS, and Discovery have soared to new heights. That's happened even as Netflix has seen its subscriber base and profits surge during the crisis.

With the improvements to its business mostly ignored and its first-quarter earnings report on tap for April 20, Netflix could see its stock spike this month. Keep reading to find out why it's the top entertainment stock to buy in April.

A person streaming a video on their tablet

Image source: Getty Images.

A position of strength

Disney+ has wowed investors by gaining 100 million subscribers in a little more than a year, half of Netflix's total. But those numbers are exaggerated in some ways. Some are free subscribers from Verizon and other telecoms, and 27 million subscribers came to the service when it combined Disney+ with Hotstar, the Indian streaming service it acquired from Fox. Those Hotstar subscribers also pay significantly less than the typical Disney+ viewer, and the service had an average revenue per user of just $4.03 in its most recent quarter.

While Disney is hustling to get as many people as possible to try Disney+, Netflix is consolidating profits, showing its confidence in the stickiness of its service and its growth path. For example, the company has done away with free trials in the U.S., ending its practice of giving away a month of the service, and it's also begun cracking down on password sharing, aiming to plug a hole that costs the company billions in lost revenue, and revenue that would flow straight to the bottom line.

Netflix also flexed its muscles with a price increase in the U.S. and much of the rest of the world, raising prices in its home market for the typical membership to $14 a month from $13, additional revenue that will also go straight to the bottom line. That shows the company has pricing power even when a number of cheaper streaming services are hitting the market. 

Netflix's content pipeline also looks as strong as ever. The company entered the first quarter with 500 titles in post-production and plans to release at least one original movie every week. The company has the pole position in the Oscars race, nabbing 35 nominations, including two for best picture for Mank and The Trial of the Chicago 7.

In addition, its local-content strategy remains a clear differentiator from other services, as the company has far more foreign-language content than any of its domestic competitors. For instance, Netflix is planning to release 40 anime titles this year, in part to cater to a huge potential audience in Japan

What the first quarter will look like

There are reasons to suspect that Netflix could top its own forecast again in the first quarter. First, the pandemic has continued to rage in much of the world, including key markets like Europe and Latin America, which should ensure a steady demand for streaming entertainment like Netflix.

Second, the company appeared to deliver another strong slate of content in the quarter with I Care a Lot earning considerable media coverage, Lupin becoming a surprise hit, Bridgerton carrying over from a late fourth-quarter release, and the Oscar nominations likely to lift interest in films like Mank and The Trial of the Chicago 7, as well as other Netflix nominees. Meanwhile, Oprah Winfrey's interview with Prince Harry and Meghan Markle even gave a lift to The Crown, according to data from streaming aggregator Reelgood

Netflix called for 6 million new subscribers in the quarter, a modest addition for the first quarter, but sees earnings per share nearly doubling to $2.97, which would easily be a record quarterly profit from the company. If the streamer can beat its subscriber target, profits should be even higher, showing it is growing profits even faster than its forecast. The company plans to deliver a 20% operating margin and said it would grow that metric by 3 percentage points each year, meaning it would reach 29% by 2024.

Netflix shares jumped after it beat estimates in its fourth-quarter earnings report, but the rally eventually faded. Another strong quarter won't be so easy to ignore.

With the tremendous tailwinds in streaming and Netflix's abundant advantages in the industry, the stock looks primed for another pop if it can deliver another round of impressive results. Don't be surprised if it does just that.