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Netflix’s stunning recovery may be extended with earnings boost

Netflix is set to announce its quarterly earnings after US markets close today (Thursday, January 19th).

And markets are predicting a move, either up or down, of 10.8% for the streaming giant’s shares when US market reopens on Friday, January 20th.

 

What to look out for?

Traditionally, the most important metric for this streaming platform is the number of subscribers it added per quarter.

Back at its Q3 earnings release held on October 18th, the company forecasted an additional 4.5 million subscribers for Q4 2022.

The actual figure may come in higher than the forecasted 4.5 million figure, given these factors:

  • slate hit shows such as “Wednesday” and “Glass Onion”
     
  • back in November, Netflix launched a cheaper plan that contains advertisements
     
  • the moderating US dollar which helped Netflix’s overseas customers (60% of Netflix’s revenue comes from outside the US)
     

Such factors should help boost the company’s headline tally of customers.

 

Focus shifts from Users to US Dollars

However, note that Netflix has been on a mission to pay less focus of total subscribers, focusing instead more towards extracting the most amount of money out of its user base.

Hence moving forward, the company will stop issuing forecasts on the number of subscribers, which then places more emphasis on traditional finance measurements.

With that in mind, here are the analyst forecasts for three key financial metrics for Netflix’s upcoming earnings for the Q4 2022 period:

  • Revenue = US$ 7.85 billion
     
  • Net income = US$ 194.7 million
     
  • Diluted EPS (earnings per share) = 0.42
     

Depending on whether the company’s official figures on any of the above metrics (subscriber or financial) actually exceeds or disappoints, that could translate into a big move up or down for its share prices.

After all, Netflix’s shares tend to say heightened volatility the day after its earnings release. According to Bloomberg data, this stock averages an 11.5% move the day after each of its earnings releases since 2012!

The bigger today’s surprise is, the larger the potential price move in this stock.

Netflix’s stunning recovery may be extended with earnings boost

Looking at the price charts

Here are a couple of fascinating notes which stand out:

  1. See the “gap down” in this stock back on April 20th?
    That should serve as a reminder as to how skittish Netflix stocks can be around its earnings release.

    That day, Netflix shares sank by an eye-watering 35.12% after announcing that it lost 200,000 subscribers back in Q1 2022, while forecasting another loss of 2 million subscribers for Q2.

    Zoom back further (not shown in chart above) and you’d find another “gap down” back in January 2022, with the stock shedding 21.8% on similarly disappointing news surrounding its subscribers tally.
     
  2. Remarkably, Netflix has soared by as much as 107% since its trough in May 2022!
    Since then, it has found support from a couple of widely-watched SMAs (simple moving averages), while also forming a “golden cross” (50-day SMA crosses over 200-day SMA).

 

To be fair, Netflix has since made significant strides in shoring up its business model and its finances. And such optimism is clearly reflected in the stunning rebound for this stock.

 

But of more immediate concern, Netflix bulls now face a psychologically-important price hurdle: the $330 region.

Note how the $330 region has been a critical support region before April’s almighty plunge, while also having already twice repelled bulls since December.

This stock could use a boost from a set of better-than-expected results later today, in order for this stock to extend its jaw-dropping recovery and move closer towards $400, provided broader market sentiment remains in the mood for more risk-taking.

 

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