This year has been hard for Netflix. The number of subscribers decreased, the monetary policy of the Fed tightened, the competition within the streaming services escalated – as a result, the stock price has collapsed by 74% since the beginning of the year to the minimum of May slightly above 160. For the last 2 months the shares have stayed in the bottom, fluctuating in the flat borders of 160 и 205.
It seems that the expectations of investors from the Netflix’s financial report for the 2nd quarter were so low, that even a little positivity led to the explosive growth of the shares by 8% on the postmarket (the trading session on Tuesday closed near the level of 215, while at the peak the price had reached 225).
The primary attention had been focused on the dynamics of Netflix's client base. For the 1st quarter the range of subscribers had depleted by 200,000, and for the 2nd quarter the company had forecasted the loss of 2 more million of the clients. The factual data has shown the loss of 970,000 subscribers – here the phrase “bad, but could be worse” is worth recalling. However, it was enough for the quotations to break through the upper limit of the flat on the level of 205 immediately and continue to grow.
The company has had to change the methods of managing business: the option of a cheaper subscription with advertisements for clients has already been announced. Also, the new episodes of some TV series have been released within a few weeks instead of uploading all the episodes at once. It will motivate the clients to prolong the subscription rather than unsubscribe after the first month. These measures are unpopular, but Netflix has to take them due to the competitive environment of the streaming services, e.g., Disney, Apple, Amazon, HBO, etc.
After breaking the upper limit of the flat on the level of 205, the next goal is opening to Netflix – the level of 235. The shares haven't traded above 235 since the moment of the failure report for the 1st quarter released on April 20. There is no discussion on closing April's gap yet, in order to do that the quotations have to increase by more than 40%. The company has to present a report significantly better than the current one for getting that dynamics.
The following trading strategy option can be suggested:
Buy Netflix in the range of 210-220. Take profit – 235. Stop loss – 205.
Traders can also use the Trailing stop instead of the fixed Stop loss at their disposal.
This content is for informational purposes only and is not intended to be investing advice.
