Netflix share price: Q3 earnings preview

When are the Netflix results?

Netflix, the world's leading streaming entertainment service, with 193 million paid memberships in over 190 countries, is scheduled to report third quarter (Q3) 2020 financial results on Tuesday the 20 October at 1pm (Pacific time).

What to expect from Netflix Q3 2020 results?

The first half (H1) of the year has seen strong growth in the Netflix subscriber base (more than 25 million paid additions in 2020 thus far), as unprecedented lockdowns have resulted in increased demand for the company’s services. Previous guidance has suggested that the latter half of the year could slow as restrictions are relaxed and the economy hopes for a return to a larger degree of ‘normality’. A generally softer dollar over the reporting period is expected to bode well for underlying earnings when repatriated to the US.

The group has guided the following in terms of the upcoming Q3 2020 results:

• Revenue growth year on year (YoY) +20.6%
• Revenue $6.327 billion
• Operating income $1.245 billion (Q2 $1.358 million)
• Operating margin 19.7% (Q2 17.9%)
• Global Streaming paid memberships 195.45 million
• Global streaming paid net additions 2.50 million

How to trade Netflix’s results

The net paid additions figures are likely to be at the forefront of traders and investors minds once again. After having added more than 25 million subscribers in HH1 of the year, Q3 is only expected to bring a further 2.5 million net additions for the business.

Market participants will want to see the net addition figure ahead of the 2.5 million estimate for short-term gains. However, should the actual figure fall short of the estimate, a near-term decline in the Netflix share price could also provide far sighted investors a more favourable entry opportunity into the share.

The IG house view is that the 2.5 million paid addition estimate may be too conservative bringing an increased possibility that the actual figure could exceed the company guidance provided last quarter.

As of the of the 19 October, 2020, 78% of IG clients with open positions on Netflix expect the price to rise in the near term, while 22% of IG clients with open positions on Netflix expect the price to fall.

As of 19 October 2020, a Thomson Reuters poll of 42 analysts have an average rating of ‘Buy’ for Netflix.

Netflix: technical view

The red, green and blue lines on the chart represent the 20, 50 and 200 day simple moving averages (SMA). The price trading above the 20-day SMA which trades above the 50-day SMA, which trades above the 200-day SMA is indicative of a positive upward trend bias for the share. In the short term we are seeing a bearish reversal off resistance at 560 which has occurred from overbought territory.

In line with the longer term uptrend, traders might consider the pullback from overbought territory as a possible long entry opportunity closer to support. Support levels currently considered for long entry are located at 510 and 465 respectively. A move to these levels of support could find fruition should the Netflix results fall short of expectation.

Alternatively, breakout traders might prefer to wait for the price to close above resistance at 560 for long entry. An upside breakout could find fruition should the Netflix results come in ahead of consensus estimates.

The long term uptrend for Netflix remains up until such time as we see the price trading below the 200-day SMA (blue line).

In summary

• Netflix is expected to see a slowing in the number of new paid additions over Q3
• The dollar weakness over the quarter should positively influence earnings
• Traders will look to a beat or miss relative to the subscriber numbers for short term direction
• IG clients with open positions expect the price to rise
• The average (Thomson Reuters) broker rating for Netflix is ‘Buy’
• A chart suggests Netflix to be overbought in the near term, although the longer-term trend remains up