How to buy, sell and short Netflix shares

How to buy and invest in Netflix shares

You can buy Netflix shares in two ways with IG. You can either use our share dealing service or trade using derivatives (CFDs and spread bets).

With share dealing, you own the underlying asset outright and you’ll have the benefit of possible share price growth and dividend payments. If you don’t want to own the shares, you can speculate on Netflix’s share price without taking direct ownership of the shares via derivatives. Follow these steps to invest in or trade Netflix shares:

Not sure which is best for you? Learn more about the difference between trading and investing

How much would it cost to invest in Netflix?

IG’s best commission on US shares is available to active clients who have place three or more trades in the previous calendar month.

Benefits of trading Netflix using derivatives

Speculating on the Netflix share price via derivatives has the following benefits:

• Full exposure with a small deposit – usually just 20-25%of the full value of the trade¹
• No tax on spread bets²
• Ability to offset your losses against profits for tax purposes with CFDs

How to sell and short Netflix shares

There are different reasons why you may want to sell Netflix shares – perhaps you are ready to take a profit, or maybe you want to trade a possible downward trend by going ‘short’ on its price. Follow these easy steps if you want to sell or short Netflix shares:

Netflix’s live market prices

Netflix shares spread betting

You can place a bet on whether the Netflix share price is going up or down via spread betting. If the share price moves in your chosen direction, you’ll make a profit, but if it moves against you, you’ll make a loss. Your profit or loss will depend on the extent of the movement.

Netflix shares CFD trading

CFD trading is when you use a contract for difference to speculate on whether an asset’s price will move up or down. You exchange the difference in the asset’s price from when you open the position to when you close it. With CFDs you can buy (go long) or sell (go short).

A brief history of Netflix

In 1997, Reed Hastings and Marc Randolph founded Netflix as a DVD-by-mail service. In the next three years, a lot of business development took place and, in May 2002, the company reached its biggest milestone as it launched an initial public offering (IPO) at $15 a share. At this time, the market cap was $309 million.

Due to uncertainty over the future of DVDs, the first few months as a listed company did not go well for Netflix. It traded in a downtrend until October 2002, where the share price hit a low of $4.85. It wasn’t until February 2004 that Netflix saw substantial recovery when it hit $71.96 per share. This was the same year that Marc Randolph retired from the company, leaving Reed Hastings as the chief executive officer (CEO).

By 2005, Netflix had already signed 4.2 million members and shares were trading at $27 after a stock split. Plans around streaming were announced in January 2007 but the share price still wasn’t recovering, closing at $3.25 for the same month. The next few years were spent building partnerships with consumer electronics companies and launching Netflix in various countries.

Due to the rapid expansion, the share price embarked on a slow incline, hitting $38 in July 2011. Netflix then decided to separate its DVD offering from its streaming service, meaning that customers had to use two subscriptions if they wanted to make use of both services. It lost 800,000 subscribers and the share price dropped from $272 in July to $71 by December. For the first time, Netflix put all its focus towards streaming.

By the end of 2012, Netflix was more than 33 million subscribers strong. It also earned its first award in 2012 – a Primetime Emmy Engineering Award. More Emmy Awards and an Oscar followed. In 2013, Netflix streamed its first original show, and invested heavily in its own content to protect its market share. This led to rapid share price growth, and a seven-to-one stock split in July 2015.

By 2016, Netflix was a global company available in all but four countries. The stock started a drastic climb to reach $391 per share in June 2018. By the end of May 2019, the Netflix stock price was $343.

Netflix shares: the basics

Netflix shares are listed on the US Tech 100 (.NDX) under the ticker NFLX-US. If you want to buy, sell or trade Netflix shares, you need to understand the details of the business, as well as the factors that impact its share price.

If Netflix’s profits or share price dips in the months to come, it may be because there has been an increase in competitors in the streaming channel market. Disney recently announced the launch of a streaming service, Apple still has plans to launch its offering in 2019, and Hulu and Amazon Prime are already raking in subscribers.

These organisations have lots of money to spend, less debt, and the ability to produce original content – a triple threat to Netflix’s success. Rumours suggest that Disney will offer subscription services at a fraction of the price, and Hulu recently announced it is cutting prices on its basic plan by 25%.

However, there has been a continuous uptick in Netflix subscribers over the last few years. If this trend continues, it could have a positive impact on the business’s revenue. Another factor that will impact revenue is how much Netflix can spend on new, original content, which attracts new subscribers. Revenue growth could increase stock demand and push share prices up.

Netflix has rewarded shareholders with solid returns over the past few years, but it still has not paid dividends. It does not look like it will start doing so soon, either – despite rising profits, Netflix still has a lot of debt.

Netflix key personnel: who manages the company?

There are eight members on Netflix’s management team:

Netflix also has a board of directors that takes care of the needs and requests of shareholders.

What is Netflix’s business model?

Netflix’s business model is based on providing paying subscribers with TV shows, movies, documentaries and DVD rentals based on an extremely accurate personalisation algorithm. Its only source of revenue is the subscription payments it receives.

Netflix has three streaming subscription levels (basic/standard definition, standard/high definition and premium/ultra high definition). The business is also based on three segments:

1. Domestic streaming: content to the US
2. International streaming: content to countries outside of the US
3. Domestic DVD: DVD-by-mail services

Netflix fundamental analysis: how to analyse Netflix

If you want to trade or invest in Netflix shares, it’s a good idea to start by conducting fundamental analysis. This means you must study Netflix’s financials, as well as certain external factors to estimate the ‘fair’ value of its shares, which may be different to its current price. One way to gauge share value is by using different ratios, including the price-to-earnings ratio (P/E), return on equity (ROE) and the relative dividend yield.

Netflix’s price-to-earnings ratio (P/E)

P/E ratio tells you how much you’d have to spend to make $1 in profit. It’s important to compare competitor P/E ratios to Netflix’s ratio, as a lower competitor ratio could mean that Netflix shares are undervalued.

To calculate P/E ratio, divide the market value per share by the earnings per share. To calculate earnings per share, divide the total company profit by the number of shares it has issued.

Netflix’s return on equity (ROE)

ROE is an indication of the return Netflix will make on its assets. Expressed as a percentage, ROE is calculated by dividing net income by stakeholder equity. A high ROE could be a possible indicator of undervalued shares. That’s because return on equity shows the income Netflix is generating relative to its shareholder investments.

Netflix’s relative dividend yield

Netflix’s relative dividend yield is the dividend yield of its stock compared to that of the entire index – in this case it’s the US Tech 100. First determine the dividend yield by dividing Netflix’s annual dividend by the current share price. Then, divide this figure by the average dividend yield for the US Tech 100. A high relative dividend yield could suggest that the shares are undervalued compared to competitor shares.

Log in to IG Academy to learn more about fundamental analysis and different ratios.

¹ Deposits for leveraged trades are 20-25% on 99.77% of tier one US shares.
² Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.