For some on Wall Street, earnings in Netflix (NASDAQ:NFLX) played out like a scary movie. But should investors be running for the exits? Let’s take a look at what’s happening off and on the price chart in Netflix stock to allow for a stronger risk-adjusted determination on shares.
Tuesday night’s quarterly release for NFLX stock wasn’t a blockbuster, which resembled nothing like the subscription video on demand (SVOD) giant’s growth era over the last decade. Worse though, much of Wall Street’s post-earnings optics targeted the report’s negatives. Topping the list of warnings were the company’s weak guidance and slower-than-expected subscriber growth in Netflix’s North American market.
The combination stoked fears competition in the streaming market from the likes of Disney (NYSE:DIS), Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) and imminent threats from AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) are the real deal. The concerns helped Netflix shares fall around 4% in the report’s immediate aftermath Wednesday. However, those worries also fail to tell the whole story in Netflix stock.
Despite the roll-out of Disney+ and Apple TV+ during the company’s reported fourth quarter, Netflix did manage to top Street profit and sales forecasts. Furthermore — and possibly more importantly — cash burn peaked in 2019, and management sees the company on the “glide path, slowly, towards positive free cash flow.”
Additionally, Global growth continues to deliver for Netflix shareholders. International paid subscriber additions of 8.33 million compared to forecasts of just 7.17 million. And, as analysts at AB Bernstein noted, that’s where the company’s total addressable market (TAM) and future growth lies. Furthermore, key markets such as India looking increasingly exciting for Netflix.
Lastly, and a word of warning to Wednesday’s bears, viewer discretion is advised on the accompanying NFLX price chart.
Netflix Stock Weekly Price Chart
Click to Enlarge
Bears may have won Wednesday’s battle. But the big picture continues to hint at higher prices in 2020 for Netflix stock. The weekly chart included here shows NFLX shares have put together a nice bullish trend, with a series of higher-highs and higher-lows. The price action follows a higher-low, double-bottom pivot hammered out this past fall inside a large corrective base nearly two years in the making. Collectively, there’s solid evidence to remain optimistic on Netflix stock.
To be fair — and more importantly, smart — the pattern isn’t a free ride for investors to simply buy into. For one, stochastics are overbought. Also, price patterns are fluid and conditions could always turn for the worse. If pattern and Fibonacci resistance near $350 aren’t cleared, a more threatening lower-high formation would have us questioning NFLX stock.
Overall, I see any potential resistance as an obstacle which will be cleared in the days ahead. And any fears the writing is on the wall for Netflix stock would only occur if shares fell below $317. That’s enough to nix a still-building hammer candlestick on the weekly chart, fail uptrend channel support and sufficient evidence to pull the plug.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
