How Might NFLX Share Price React to Q1 Earnings?

Recall that the pandemic prompted a massive front-loading of Netflix subscriptions, as households starved for entertainment amid lockdowns drove the company’s global customer base past the 200 million mark by the end of last year.

For Q1 2021, Netflix has guided for an additional 6 million subscribers, while Wall Street expects that tally to be closer to 6.3 million. That’s still a pretty healthy figure, even though it pales in comparison to the 15.77 million new paying members who signed on during the same period a year ago.

Sauntering subscriber and share price growth

Looking ahead, shareholders appear cognizant that Netflix would find it tough to replicate the growth spurts it experienced last year. The same can be said for its share price.

After surging by 67.1% in 2020, Netflix has only managed a gain of 2.54% so far this year. That’s slower in comparison to the year-to-date performances of:

• Disney: 3.45%
• Amazon: 3.53%
• Nasdaq 100: 7.91%
• Facebook: 10.65%
• Google: 30.65%

Netflix has clearly been a laggard within the famed FAANG group, with the streaming company now languishing 5.44% below its record high, set on 20 January 2021, which was also the day after its last quarterly earnings announcement.

From a technical perspective, Netflix’s share prices found support at its 200-day simple moving average (SMA) in March, using it as a platform to launch back above its 50-SMA this month. However, with the bullish momentum in the stock plateauing, while a close above the $555 mark having proved hard to come by since mid-February, Netflix could do with a positive catalyst to catch up with the rest of its peers.

Perhaps that catalyst may arrive at the company’s earnings release later today.

What are markets expecting for Netflix’s Q1 financial results?

Three words: record setting quarter.

Wall Street expects Netflix to post its highest-ever revenue and net profit for a single financial quarter. The top line is expected to breach the $7 billion mark for the first time in the company’s history, thanks to price hikes in the US, Germany, UK and Ireland. Meanwhile, the company’s adjusted net profit is slated to come in at $1.45 billion, and that should translate into an adjusted earnings per share of $3.18.

However, look beyond the historic numbers and the broader industry harbors troubling signs for Netflix.

Streaming wars eroding Netflix’s advantage

According to a report by Parrot Analytics, just over half (50.2%) of the original series that viewers worldwide wanted to watch online over the past three months were by Netflix. While that figure still dwarves second-placed Amazon Prime’s share of 12.2% for the same period (January-March 2021), Netflix’s market share has clearly dropped from the near-65% share it enjoyed some two years ago.

Within the US alone, the decline in Netflix’s market share is even more obvious. According to Bloomberg Intelligence data, Netflix’s share of the US streaming pie has gone from near-total dominance of 96.04% in Q1 2018 to just 44.43% as of Q4 2020.

As the competition for eyeballs intensifies, Netflix is set to find it harder to gain more subscribers.

Netflix not taking things lying down

That doesn’t spell the end of Netflix. This year alone, the world’s largest streaming platform aims to release over 70 movies. The streaming giant earlier this month also announced a deal with Sony, which is reportedly worth over $1 billion. The agreement gives Netflix the rights to exclusively show Sony movies released from 2022 onwards after they’ve completed their theatrical runs.

That should keep their 210 million subscribers (estimated as of end-March) and counting, entertained with popular franchises such as “Jumanji” and “Spider Man” over the coming years, even with the potential prices hikes looming.

Armed with customer loyalty while flexing its pricing power, Netflix still has a lot within its arsenal to withstand the heightened competition for viewers’ attention.

How might Netflix’s share price react after Tuesday’s earnings?

Markets are pricing in a 7.2% move for Netflix’s share price when markets reopen on Wednesday. Although NFLX could go either way, it’s notable that shareholders typically sought to use these announcements as selling opportunities. The stock declined the day after 8 of the past 11 earnings.

Still, a 7.2% move to the upside would set a new record high for Netflix’s share price, while a similar-sized move to the downside could see the stock looking for support around its 200-SMA once more.

How exactly will this NFLX stock react this week? We’ll just have to stay tuned and watch the drama unfold.

Written on 20/04/2021 02:00 GMT by Han Tan, Market Analyst at FXTM

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