Is Netflix A Blockbuster Or Another Blockbuster Video?

October 19, 2022 by Thomas Hughes

Key Points

Netflix shot higher following better-than-expected subscriber numbers.
Institutional activity may support higher prices for the stock.
The outlook is positive but marred by FX headwinds that could plague the entire S&P 500.

Netflix (NASDAQ: NFLX) shocked the market with its Q1 2022 earnings release and raised the question of if this once-blockbuster investment was turning into another Blockbuster Video. The subscriber growth numbers coupled with lingering issues around password sharing and monetization helped send the stock down more than 40% in a single day wiping billions of value out of the market. The Q2 results weren’t much better, issues remained that now seem to be evaporating. The real takeaway from the time period is that institutional activity in the stock more than doubled the monthly average and accelerated again in the calendar Q3 period. What this means for investors is the institutions put a firm bottom in the stock and now it’s ready to move higher once more.

Total institutional activity topped $12.35 billion in calendar Q2 and then $12.75 billion in Q3 but don’t think they were selling. While the mix suggests rotation within the institutional investment community the net of activity in both Q2 and Q3 is bullish. The margin of difference is slim in Q2, only $0.43 billion, but it widens to $3.89 billion in Q3 and totals almost 4.0% of the pre-Q3-earnings-release market cap. That’s a big chunk of change for the institutions to put into the company in such a short period and has their total holding up to 75.5% of the company. Based on the Q3 strengths, it will not be surprising to see the institutions expand their holdings in Q3 and the quarter-to-date data suggests they are. So far in Q3 the activity is light but tilted in favor of the bulls.

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Netflix Beats Estimates As Efforts Gain Traction

Netflix beat its consensus estimates for top and bottom-line growth due to ongoing efforts to improve the business. The company reported $7.93 billion in net revenue to beat the consensus by 11 basis points and drive bottom-line strength as well. The gains were driven by a 2.4 million gain in net subscribers which was 1.4 million more than expected. The gain more than offset a larger-than-expected churn that left total global subscribers up 1.4 million versus the prior guidance. The best news is that margin strength is present as well and led the GAAP EPS to outpace the consensus by 4500 basis points. The $3.10 in GAAP earnings is down almost a dime from last year but beat by almost a dollar but this is where the really good news ends.

The guidance is very bright but tarnished by FX headwinds. The company is expecting to see 9% YOY growth on an FXN basis but the rising spread between the dollar and the basket of global currencies is going to eat into reported results and earnings. The new guidance is calling for revenue of $7.77 versus the $7.98 consensus figure and for EPS of only $0.36. This compares poorly with last year’s $0.82 in EPS and the $1.22 expected by the analysts. The analysts, however, still see value in the stock and have been gushing over the Q3 results.

So far, Marketbeat.com has tracked 14 analysts with commentaries released since the earnings report was released. All 14 include a price target increase and 3 include upgrades that have the consensus rating firming from a solid Hold toward Buy and the price target rebounding off the 1-year low. The price target of $311 implies about a 17% of upside from the pre-release share price and is up 6% versus one month ago.

The Technical Outlook: Netflix Hit Bottom, Don’t Chase Prices

Netflix hit a bottom over the summer and now a rebound is on. The caveat is that technical resistance to higher prices is strong and the market is fast approaching them. As strong as the Q3 results are, they don’t mitigate a 75% decline in share prices or erase technical resistance that should be expected from the $275 level all the way up to $350. The $275 level is coincident with the midpoint of the April implosion and it could be a significant level of resistance. If the market can get above that level the next potential ceiling is near $350, where the implosion began.

Is Netflix A Blockbuster Or Another Blockbuster Video?

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Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
Netflix (NFLX)	$871.54	+2.9%	N/A	49.32	Moderate Buy	$753.45

About Thomas Hughes

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Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.