Netflix (NFLX) - Get Netflix, Inc. Report is set to have an impressive quarter on Tuesday, which would be a reversal from July's earnings and guidance disappointment. "For the earnings, the bar is set a little lower than it was in July," Eric Jhonsa, columnist for TheStreet said at Jim Cramer's teach-in even Saturday. He added "That makes things a little easier."
"The fact that expectations are lower should help them out," Jhonsa said.
Netflix is Real Money's stock of the day.
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Whether or not FAANG stocks (Facebook (FB) - Get Meta Platforms Inc. Class A Report , Apple (AAPL) - Get Apple Inc. Report , Amazon (AMZN) - Get Amazon.com, Inc. Report , Netflix, Google (GOOGL) - Get Alphabet Inc. Class A Report ) have "overstayed their welcome," meaning that their high earnings multiples might be too high now, Netflix could still very much remain a growth stock.
Not only could Netflix be a good pre-earnings play, it could be positioned to maintain its competitive edge in streaming. "The fact that Amazon relies on Prime memberships to pay for that content spend...makes it very hard to match Netflix dollar for dollar in terms of content spend," Jhonsa said. That was in response to Cramer's question asking about the threat to Netflix that Amazon could outspend it because it has a much larger balance sheet.
Jhonsa pointed out "The rest of Netflix's management team is solely focused on streaming," and that "Amazon is focused on many different things." Be sure to check out TheStreet's live blog starting Tuesday, Oct. 16 at 3:45.
While these factors may bode well for Netflix, there are certainly risks to consider. "In a market where everyone is on edge regarding Federal Reserve Policy and investors are taking a more defensive stance, it's hard for me to justify paying more for Netflix than I would Amazon," Zev Fima, research analyst for Cramer's Action Alert Plus team said. Simply put, an investor could be taking more risk by paying a high PE ratio for Netflix, when he or she can pay a high multiple -- but slightly lower -- for Amazon, a company that has a competitive moat around several businesses, "with a much more diverse revenue stream that plays to everything from e-commerce to advertising to the public cloud and soon healthcare," Fima said.
A lesson from Fima: you can like the company but not the stock.