Netflix stock stalled ahead of Q4 earnings

When does Netflix report earnings?

Netflix reports earnings for the fourth quarter (Q4) on 19 January, the first tech/high-growth stock to publish figures for the most recent quarter in this earnings season.

Netflix earnings – what to expect?

Netflix expects to report earnings of $1.35 per share, up 3.8% year-on-year (YoY), while the Bloomberg consensus is $1.36, a 4.8% gain. Revenue is expected to have risen 21.2% to $6.62 billion, a reflection of the huge gains made in subscriber numbers over the year.

As in almost every earnings report, the focus for Netflix is more on the subscriber numbers than on the actual profit and revenue figures. It remains imperative for the group to keep current subscribers and acquire new ones, and to this end it has to constantly find and release new content. For example, it will release an original film every week in 2021, providing a steady drumbeat of new content for users. Having added just 2.2 million new subscribers in Q3, well below forecasts, the focus is on whether Netflix can recover its strong growth from the first two quarters of 2020. Q4 is forecast to have seen 6 million added, a significant improvement.

How to trade Netflix’s earnings

Netflix has beaten earnings forecasts in six of the last eight updates, and for five of the last eight for revenue estimates. The average move on results day is 4.7%, but Q3’s results saw the stock fall 7.6%. Current options pricing points towards a move of 6.8%. Of the 43 analysts covering the stock, 27 have ‘buy’ recommendations, with ten ‘holds’ and six ‘sells’.

Netflix stock price – technical analysis

Netflix hit a peak of $550 in early July, and since then the price has stalled, falling into a range from around $468 to $550. Ahead of results, the price is heading back towards the lower bound of the range, having touched the top end of the range at the beginning of the year. Investors will therefore be looking for a bounce from support, or a possible drop below this lower bound that will open the way to $400 and potentially lower.

Netflix waits on good news

While other big tech names enjoyed a solid 2020, Netflix’s was a year of two halves, with early gains succeeded by a mixed period of sideways trading as the positive news regarding subscribers in Q1 and Q2 faded. The stock is now waiting for a reason to continue to rally, with investors acutely aware of how the growth in subscribers has been matched by a steady increase in costs.