Netflix: What surprises will the epidemic bring?

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Netflix, Daily chart & Weekly chart

By: Lariance Zhang

On July 16, it is scheduled for the media giant Netflix to report its second-quarter results. Obviously, Netflix has been one of the companies that benefited from stay-at-home orders following the outbreak of COVID-19 pandemic around the globe.

In Q1 2020, the company reported an increase of 15.77 million paid subscribers globally, far exceeding its net addition of subscribers that was 9.6 million in the prior-year quarter. During the period in the March quarter, Netflix subscribers have reached almost 183 million worldwide. The company has reported an EPS of $1.57 ($709 million) versus the EPS of $0.76 ($344 million) in the year-ago period. In addition, revenue has seen to grow from $4.52 billion in the prior-year period to $5.77 billion.

According to the Zacks Consensus Estimate , Netflix is ​​expected to record earnings of 1.83 per share in the upcoming report , a year-on-year increase of 205%. In addition, revenue is expected to increase by 23.4% over the same period last year and reach USD 6.07 billion . Although people are optimistic about Netflix’s profit prospects, the company is still ranked third (held) in the Zacks ranking system.

On July 13, Netflix’s stock price soared and reached a new high of $575.23 , and then sharply retreated its gains and closed below Friday’s opening price (522.97 US dollars) at 522.27 US dollars. The stock price is still higher than the average 12-month target price offered by 14 analyst companies in the past three months at $480.55. These analysts have estimated the company’s highest stock price at $670.

Figure 1: [Nasdaq (2020)] is based on Netflix, Inc.’s quarterly revenue surprise amount, https://www.nasdaq.com/market-activity/stocks/nflx/earnings .

While the second quarter captures an April-to-June period when stay-at-home orders contended a big chunk of the world, the official “mostly guesswork”, internal forecast is for a gain of over 7 million subscribers to a total of 190.4 million. Subscriber growth is one of the key factors to determine the performance of the company. As such, any outperformance or underperformance of subscriber additions may in large affect the direction of the stocks trade. Uncertainty remains as push-and-pull exists globally.

In addition, investors will continue to eye on Netflix’s reported operating margin. In 2019, the company has reported a rise in its operating margin to 13% from the recorded 10% in 2018. For now, Netflix is looking at 53% y-o-y improvement with its $1.08 billion target for operating income.

From the technical perspective, the Weekly chart has displayed Netflix share price being traded in a solid uptrend since gaining its ground from its session lows at $290.16 seen on 15th March. Last Friday, the company’s shares made a leap to close at $548.78, bagging in over 70% gains so far this year. Price was closed above the 61.8 FE level (which extends from 1st point 252.23 to 2nd point 458.78 and back to 3rd point 397.76) which also corresponds to $525.40. Bullish crosses have formed among short-to-medium term SMAs while both MACD lines and red histogram suggest bullish momentum remains intact.

From the Daily chart , Netflix retreated sharply after rising above $575.23 yesterday and slightly closed the opening price seen on Friday ($522.97), reported at $522.27; at the same time, the stock price also closed in the rising wedge Below the trend line. The moving averages are long; the MACD double line expands upwards while the red column line shrinks slightly.

It is worth noting that the current stock price is still at a critical level-long and short trading activities tend to be active at this position, and may lead to the continuation or reversal of the current trend. The upper resistance is seen at the FE 100.0 extension level ( 604.30 ) and the rising wedge trend line ; the lower support is seen at FE 61.8 ( 525.40 ) and the 10- day moving average (pink).


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