Netflix is up 25% in 2.5 months! What’s happening??

Stock Movement:-

Investors have been cheering Netflix’s rally on Wall Street as the streaming giant’s stock recently reclaimed the $600 mark after over 14 months!

After global markets declined due to the US Banking Crisis in 2023, Netflix’s stock tracked the decline as the stock fell almost 18% a month, briefly dropping below the $300 mark! However, after UBS announced the acquisition of Credit Suisse in the latter half of March, global markets normalized as Netflix’s stock showed signs of recovery.

The stock saw a decline of almost 4% in a single day when the US Fed announced a 25 bps rate hike near the end of March, Netflix recovered from the decline alongside the market. Although the stock regained the $350 level quickly, the company’s earnings results disappointed investors as the company gave a lower-than-expected forecast. 

Netflix was facing an unexpected market saturation condition where it was growing and profitable, but incapable of finding new ways to make money. The company was looking for new ways to boost revenues such as the implementation of a password crackdown and a cheaper ad-supported version.

However, the lower forecasts adversely impacted investor sentiment, leading to the stock witnessing some correction by the end of April. But the correction did not last long as the stock began climbing once again around mid-May as the company began its password crackdown. 

The stock jumped 9% in a single day as the company’s new ad-supported version as the company gained 5 million new subscribers for said version while 25% of its new subscribers were signing up for that version. This proved to be a winning move for the firm as it began witnessing greater growth, showing signs of revitalization of a stagnant industry. Netflix’s stock quickly breached its resistance at $361.10 and managed to reclaim the level of $400 after 10 months!

The end of password sharing combined with the ad-supported version of the app proved to be a winner as the stock sustained the $400 mark and challenged its resistance at $445.96. Mid-way through July, the stock spiked over 6% in a single day as analysts upgraded their outlook of the stock and the stock went on to reclaim the $480 mark.

However, the rally was short-lived as it fell soon thereafter. Netflix’s revenues grew by only 2.7% to $8.19 billion, missing all analysts estimates. While the company added almost 6 million subscribers, lower top-line growth led to investors selling the stock, sending it down over 8% in a single day!

The stock retreated below the $445.96 level as muted movement across the US market was reflected in the stock. It remained range-bound between $445.96 and $399.45 for the remainder of July, the entirety of August, and halfway through September as the S&P 500 was correcting during the period.

After the stock re-challenged the $445.96 level around mid-September, the stock fell almost 10% in 3 days after the company’s CFO warned of softer margins, claiming its ad-tier subscription was taking time to mature, leading to Bears sending the stock down. It broke through its support at $399.45 and continued declining, losing 22% in a month!

By mid-October, the stock was downgraded and had fallen through its support at $361.10, wiping out its entire progress over the last 5 months! However, the decline was overturned as the company’s third-quarter results went above and beyond what Wall Street expected. 

While revenues met expectations, the company added 8.76 million new subscribers during the quarter, significantly higher than analysts’ estimates, renewing interest in the stock as investor confidence was restored in the stock. Moreover, the company announced price hikes, which led to minor corrections but did not affect the upward move.

Positive global sentiments resulted in the S&P 500 gaining sharply throughout November and December as Netflix’s stock tracked the movement, gaining 21% in 2 months! 

January began poorly for American markets as the first session of the market was red. While Netflix was one of the biggest losers that day, it remained above the $445.96 support. The stock briefly reclaimed the $500 mark but was unable to sustain it as it traded along the level. However, the company’s fourth-quarter earnings helped the stock break through.

Although the company missed out on its EPS estimates, it added a staggering 13.1 million new subscribers in the final quarter, taking its total tally up to 260 million paying subscribers. The company forecasted a healthy double-digit growth in revenues for 2024 as the stock gained over 10% in a single session.

The share reclaimed the $600 mark by the end of February 2024 as the S&P 500 hit fresh lifetime highs. The stock has recently struggled to breach past its immediate resistance at $623.02 as the level poses a significant challenge for investors.

Analysis:-

Technically, Netflix’s stock was trading below its 5-day, but well above its 20, 50, 100, and 200-day averages. Moreover, the stock’s RSI was at 59.23, fairly close to its overbought zone of 70. The stock has been in a visible uptrend since the latter part of October 2023 as Buyers have been driving the share up.

However, the stock has been range-bound within its immediate resistance at $623.02 and its immediate support at $580.59 as neither Bulls nor Bears are able to move the stock decisively beyond this range. Moreover, the $600 mark has also been maintained as the Bulls have not allowed the stock to remain below that level ever since the stock reclaimed it less than a month ago!

Moreover, the chart shown above shows that Netflix’s stock managed to outperform all its major competitors like EA, Walt Disney, and Live Nation while also beating the overall market’s gains! With rising interest in the stock, the company’s shares have been enjoying a bullish uptrend which helped the stock regain levels that it fell from 15 months ago!

Fundamentally, the company has seen healthy growth. Its latest results showed significant growth as its revenues for the final quarter of 2023 came in at $8.83 billion, up 12.5% annually. Moreover, it onboarded a record 13.1 million new customers in the quarter, taking its total subscriber count up to 260.8 million, becoming the largest online subscription platform globally!

What’s the future outlook??

Netflix’s stock has turned multi-bagger as the company’s growing business has doubled investor wealth in a year! As shown above, Netflix’s share has managed to beat all its major competitors while outperforming the overall market. Over 14 months, the S&P 500, one of the biggest and oldest stock indices in the world, gave a return of 34% while Netflix’s share gained a record 113%!!

Netflix’s business has undergone significant changes in 2023. The company cracked down on the rampant password-sharing issue that it suffered from while successfully launching an ad-supported version of its app. According to company stats, the move has been widely successful as the company gained over 5 million subscribers for its ad-supported version within 3 months of its launch and has over 23 million such subscribers today!

Moreover, the company is also expanding its gaming portfolio. The company announced in October 2023 that it was expanding its gaming platforms from smartphones to TVs, PCs, and Macs, bringing a substantial shift to its gaming offerings. Furthermore, the company recently brought in three iconic ‘Grand Theft Auto’ games to its library while simultaneously expanding into live sports.

Adding on to this, the company is also hiking its prices. It recently discontinued its $11.99 plan, which was its cheapest ad-free plan, in some markets as prices were hiked in October 2023. Since the company’s price hike move fared better in the US, the UK, and France than expected, price hikes are certainly possible in 2024.

Thus, the significant changes made to its business structure have prompted analysts to upgrade the stock’s targets. Although the company’s advertising hasn’t scaled up greatly, pressuring the company’s margins, analysts expect the company to show robust revenue growth in 2024 as its margins and cash flows improve.

Therefore, analysts have now upgraded their ratings of Netflix with significant upside potential on the back of improving business, operational efficiency, and weaker competitors! 

With the growing craze for binge-watching alongside rising willingness to spend money, consumers are expected to increase spending on streaming platforms. According to market research, the streaming market is sized at $126.84 billion in 2024 and is expected to grow almost 5x times by 2032 to $606.77 billion, exhibiting a CAGR of 21.6%!

As the market’s largest player that dominates over all other streaming platforms with fresh content, targeted strategic initiatives, and a subscriber base of over 260 million, Netflix is expected to be the biggest beneficiary of the growth in the streaming market. Therefore, Netflix’s stock is expected to remain in an uptrend as its short and long-term prospects appear bright.