Netflix crushing Q2/20 expectations but still bearish?

July 24, 2020 15:30

Last Thursday, after markets closed, Netflix/#NFLX, a member of the "big5" and "FAANG" member posted its quarterly earnings.

While Q2/2020 expectations were excelled, expectations for Q3/2020 were not very promising – and market participants dumped their Netflix positions, seeing Netflix stock tumbling after-trading-hours as much as 10%.

Netflix/#NFLX crushes expectations and the stock tumbles 10% - why?

Well, when looking between the lines one can see that Netflix did indeed beat expectations of 8.3 million who paid for streaming services in Q2/2020. But in regards to earnings, Netflix released a miss: earnings per share (EPS) came in at 1.59 USD against an estimated 1.82 USD.

And that is indeed disappointing given the fact that Netflix, as a company, was expected to perform better in the context of a lockdown, which can be seen in the stock price developments with Netflix shares which have soared more than 60%, putting it in the Top10 performer of all S&P500 companies in 2020 so far and thus playing in the same league as Amazon or eBay, to other "Corona lockdown beneficiaries".

And what's even worse: Netflix sees its streaming paid net change for Q3/2020 at only 2.5 million against an estimated 5.12 million, which seems to make sense given plenty of other option like YouTube, Hulu, Amazon Prime, Disney+ or HBO.

Since it seems a serious option that such huge competition will reduce more and more market share of Netflix, leaving the next earnings report vulnerable to post its first quarter of less than 20% growth year-on-year, leaving Netflix shares with some serious downside potential after hitting just a fresh all-time high of around 575 USD only two weeks ago.

With the lower daily close on Friday, a first sign in bearish territory was sent, even though it was already the sixth post-earnings drop in the past seven quarters.

How to trade #NFLX in this environment?

While the bullish trend on a daily time-frame stays intact as long as #NFLX trades above 400.00 USD and its SMA(200), we'd currently look for an entry, targeting on anticipation of a break of the bullish sequence.

A potential short-trigger can be found between 520.00 to 530.00 USD with a stop placed at 575.00 USD and a target being found at 400.00 USD and lower, delivering a risk-reward ratio of already more than 1 to 2:

Source: Admiral Markets MT5 with MT5SE Add-on #NFLX CFD Daily chart (between April 1, 2019, to July 22, 2020). Accessed: July 22, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of #NFLX increased by 134.38%, in 2016, it increased by 8.42%, in 2017, it increased by 39.44%, in 2018, it increased by 39.44%, in 2019, it increased by 20.89%, meaning that after five years, it was up by 557.8%.

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