Netflix Stock Could Tumble on Q3 Report: Technician
Shares of on-demand streaming giant Netflix Inc. (NFLX) were among the hardest hit by last week’s sell-off, which sent a shock wave across the global markets and disproportionately weighed on U.S. tech titans. As the Los Gatos, Calif.-based company prepares to report its most recent quarterly earnings results on Tuesday, one market watcher warns investors that the worst may be yet to come, as outlined by CNBC.
Netflix Chart Shows ‘Classic Head and Shoulders Pattern,” Says Bear
While Netflix stock is still up a whopping 76.9% year-to-date (YTD), outperforming the S&P 500’s 3.5% gain and the tech-heavy Nasdaq Composite Index’s 8.6% increase over the same period, it has fallen 20% from highs reached in July before posting second-quarter results. In Q2, investors were disappointed with Netflix’s net subscriber additions, adding to fears regarding heightened competition in the streaming space from deep-pocketed tech behemoths such as Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) as well as traditional media players including Walt Disney Co. (DIS) and other popular competitors like Hulu.
Now, Todd Gordon, founder of TradingAnalysis.com, indicates that key technical developments in Netflix’s chart make him more cautious on the once-red-hot FAANG stock. In an interview with CNBC’s “Trading Nation” on Friday, the market watcher pointed to Netflix’s one-year chart, noting that while shares have had an “unbelievable run,” investors should be wary of a classic head and shoulders pattern. He noted that the neckline of the pattern, at $338, falls just below Netflix’s current share price at $339.56.
“If you break through there, there is no reason that we are going to hold this support level,” said Gordon.
Gina Sanchez, CEO of Chantico Global, echoed the bearish sentiment in the CNBC segment, arguing that Netflix is trading at an inflated valuation considering an increasingly crowded and competitive streaming industry. She expects investors to focus on Netflix’s domestic subscriber growth, where the company has the highest margins in terms of average revenue per user. As a result, even if Netflix continues to post solid gains abroad, a miss in U.S. growth could significantly weigh on the stock.
“It seems to me like we’re getting to the end of what was a great run as Netflix established itself, but it’s going to go into maturation, and at this point have to start thinking about those forward multiples,” said Sanchez.
Not all are so bearish. Netflix stock jumped on Friday following an upbeat note from analysts at Citi who upgraded shares to outperform, citing the recent correction as an opportunity to buy a “high-quality, recurring revenue franchise” at a discount.
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