Netflix (NASDAQ:NFLX) dropped a bomb on the market Thursday night, leaving a crater in multiple stocks. While the news had particular ramifications for streaming stocks, it also added further concerns for growth stocks, which have been under fire for weeks and hardly needed another reason for pessimism.
The nuke, of course, was Netflix earnings, which revealed dismal growth forecasts.
Despite beating EPS estimates for the last quarter, the company’s expectation for 2.5 million new subscribers in Q1 left much to be desired. The Street was looking for the media giant to add 6.93 million subscribers. Shareholders abandoned ship throughout the after-hours session, and Netflix stock opened this morning down more than 20%.
Other stocks in the streaming media space were taking it on the chin this morning. Here are three of the hardest hit:
Investors are betting what’s bad for Netflix is bad for the entire streaming ecosystem. Let’s take a closer look at each chart.
Streaming Stocks: Walt Disney Co (DIS)
Disney was already struggling with its own underwhelming earnings numbers. Its share price slid 19% in the weeks following November’s disappointing report that included lukewarm forecasts for Disney+. DIS stock had been on the mend, but last night’s Netflix drama pulled the rug out from under it. At the lows of the Friday session, prices were down 7% to a new 52-week low.
Worse yet, from last year’s peak, the stock is down 33%. The trend is lower, and the 200-day, 50-day, and 20-day moving averages are all declining to confirm sellers control all time frames. For now, rallies are suspect, and selling rips has better odds than buying dips.
If you want to bet that bears keep the lid on prices for the next month, enter the following play.
The Trade: Sell the February $150/$155 bear call spread for 85 cents.
In the wake of the pandemic, Wall Street bid shares of Roku to the moon. Growth stocks were all the rage, and the company sat in a unique position to capitalize on the secular shift to smart TVs and streaming devices. Unfortunately, its share price has come full circle by returning to its pre-pandemic levels.
Traders already had plenty of reasons to avoid the stock, but last night’s Netflix earnings disaster provides one more.
ROKU stock is down 7% and following Disney to a 52-week low. Prices are now down 68% from the peak. It will take either an earnings surprise (which is unlikely) or market participants finally embracing growth stocks again to bring it back to life.
I suggest betting on the downtrend continuing by deploying bear trades.
The Trade: Buy the March $150/$130 put spread for $8.
Streaming Stocks: FuboTV (FUBO)
If you thought the damage in Disney and Roku was terrible, then get ready because FuboTV is way worse. As for its reaction to Netflix earnings, shares were slipping 8% on Friday to a fresh 52-week low. FuboTV offers a streaming service for live TV focusing on sporting events. It’s still in its infancy as a public company debuting in 2020.
Since then insane volatility has hounded the stock. Prices rose from $8 to $62 before falling to their current spot near $10. From the peak, FUBO stock is down 84% with much of the loss coming over the past three months.
FUBO is down seven days in a row. I’m not a fan of chasing new bearish entries and would rather wait for a rally to offer a lower-risk setup.
On the date of publication, Tyler Craig was LONG DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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