Can Netflix shares rebound on earnings update?

Netflix (NFLX) reports on Jan 19th, with average earnings per shares (EPS) estimated at $1.40 on revenues of $6.6bn, up 20% year-on-year.

Whilst the company has been a big winner from the pandemic as subscriptions leapt with consumers stuck at home, there are worries about the service going forward.

One, is it as good as it used to be? The library content is shrinking and competition is far more intense these days. Churn is a big concern with one survey showing 32% of respondents indicating they are likely to cancel Netflix in the next three months. This is well up on previous levels and indicates perhaps a degree of subscription fatigue among consumers. Whilst Netflix remains first among equals (people with more than one VOD subscriptions almost invariably have a Netflix account), it’s facing much sterner competition from the likes of Disney, which is throwing some serious effort into new content and has the advantage of established brands and intellectual property like Star Wars.

Two, we’re heading into the other side of the massive pull-forward in demand that really drove the 2020 subscriber growth. Paid net adds hit 26m in the first half but had declined to just 2.2m in Q3. Netflix ended Q3 with 195m paid subscribers and expects a further 6m net adds in Q4 to reach 201m in total. Key will be the subscriber growth in Latin America and Asia Pacific, where growing broadband penetration rates are supportive of ongoing growth. Whilst Netflix has had some notable local-language successes, it will need to keep repeating these to keep growing – content remains king.

Netflix pay adds year to date.

Netflix Sentiment Analysis

Netflix sentiment

Stock price analysis

The price action has been very range-bound since July amid ongoing uncertainty about whether Netflix can kick on and build on its pandemic growth, or whether growth rates will never be the same again. Hugging the 50-day SMA at present and looking for breakouts either side of $560 and $470 to be chased.

Netflix price movements