Sellers Lock and Load Ahead of Netflix Report

Netflix Inc. (NFLX) reports Q1 2022 results after Tuesday’s closing bell, with analysts projecting a profit of $2.92 per-share on $7.95 billion in revenue. If met, earnings-per-share (EPS) will mark a 21% profit decline compared to the same quarter in 2021, when pandemic restrictions added to subscriber growth. The stock collapsed in January, posting a 21% sell gap after lowering Q1 guidance to just 2.5 million new subscriber additions.

Is Slow Growth Permanent?

Analysts have raised guidance to 2.8 million during the quarter, well below previous estimates of 5.7 million. That number could be over-optimistic, given price hikes, industry saturation, loss of some international markets, and broad macro headwinds that have impacted consumer buying decisions.  Adding to risk, Q2 marks the streaming giant’s historically weakest quarter, with the onset of spring encouraging folks to engage in more outside activities.

Monness Crespi Hardt analyst Brian White offered a somber preview of the report, noting that “Although the content on Netflix has been exceptional over the past couple of years, nefarious forces appear to be lurking beneath the surface of Netflix’s post-lockdown recovery, either in the form of a slower-than-expected healing process after the pandemic-driven pull forward, a weaker-than-expected global economy, or a platform that has simply hit a near-term growth wall.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, 16 ‘Hold’, and 2 ‘Underweight’ recommendations. In addition, two analysts recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $330 to a Street-high $700 while the stock is set to open Monday’s session just $10 above the low target. It pays to be skeptical about these ratings, given the chronic failure of analysts to accurately predict slowing subscriber growth.

Netflix broke out above 2018 resistance near 400 in April 2020, entering an uptrend that stalled above 575 in July. It cleared that barrier in September 2021, posting an all-time high at 700.99 in November, ahead of a downturn that failed the breakout about two weeks before January’s horrific Q4 report. The stock bounced after falling to a two-year low in March, but the uptick failed to end the string of lower highs and lower lows. In turn, this bearish price action exposes additional downside through the 300 level.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.