To The Moon

Netflix Is -34% Since June. Here's Its Chart Ahead of Earnings

$Netflix(NFLX)$   has fallen 34% from last June's all-time high, with almost half the declines following word the streaming giant aims to buy $Warner Bros. Discovery(WBD)$   in what's become a bidding war with rival suitor $Paramount Skydance Corp(PSKY)$  . Let's see what NFLX's chart and fundamentals say ahead of next week's Q4 earnings report.

Netflix's Fundamental Analysis

Netflix and Paramount Skydance have been angling for months to buy Warner Brothers Discovery, with WBD agreeing last month to Netflix's $72 billion cash-and-stock offer for the company's Hollywood assets. (Plans call for WBD to spin off TV holdings like CNN into a separate company.)

However, Paramount has launched an all-cash $108.4 billion hostile-takeover offer for all of the company, and has sued WBD over rejection of its rival bid.

Now, Bloomberg reported on Tuesday that Netflix is working on revising its own WBD offer to make it an all-cash proposal.

Interestingly, TD Cowan analyst John Blackledge cut his Netflix price target on the same day to $115 from a previous $142 (and compared to NFLX's $88.05 Thursday close), although he maintained the stock's "Buy" rating. Blackledge is rated at five stars out of a possible five at TipRanks.

Meanwhile, Daniel Kurnos of Benchmark (who TipRanks rates at four stars out of a possible five) reiterated a "Hold" rating on NFLX on the same day with no price target.

These could not exactly be considered ringing endorsements from a couple of highly rated sell-side analysts. 

All of this is happening as Netflix prepares to release Q4 results next Tuesday after the bell following a tough Q3 where the company fell short of analyst forecasts for both earnings and revenue.

As for next week's Q4 results, the Street is looking for Netflix to report $0.55 in GAAP earnings per share on about $12 billion of revenue.

That would represent a 27.9% gain from the $0.43 GAAP EPS the company reported in the year-ago period, as well as roughly 16.5% in sales growth from Q4 2024's $10.2 billion in sales. 

It's also worth noting that 19 of the 30 sell-side analysts that I know of who cover Netflix have boosted their earnings estimates since the quarter began, while nine have cut their forecasts. (Two have left their numbers unchanged.)

Netflix's Technical Analysis

Now let's look at NFLX's chart going back some 10 months and running through Tuesday afternoon (Jan. 13):

We will see that Netflix has a tough-looking chart, which isn't surprising given how much the shares have lost since late June.

In fact, the stock has surrendered all three of its key moving averages since October. These include Netflix's 21-day Exponential Moving Average (or "EMA," marked with a green line), its 50-day Simple Moving Average (or "SMA," denoted with a blue line) and its 200-day SMA (the red line).

The stock also created an unfilled gap in October that would require a tick to $124.86 or higher to fill.

Similarly, Netflix saw a so-called "death cross" in early December. That's a bearish technical indicator that occurs when a stock's 50-day SMA (the blue line) crosses below its 200-day SMA (the red line).

This would be an even more bearish sign if the 200-day SMA were sloping downward at the time of the event, but that doesn't look to be the case here. 

I've applied an Andrews' Pitchfork model to Netflix's downtrend, as denoted by the blue diagonal lines at the chart's right.

We can see that the stock has crashed through this model's central trendline and has remained within the lower chamber's confines for about a month now. That lower trendline might be Netflix's last line of potential support before we have to start looking at the stock's historical charts for even-lower levels. 

Meanwhile, Netflix's Relative Strength Index (the gray line at the chart's top) seems anemic, having clung to very weak or technically oversold levels for a solid month now.

Similarly, the stock's daily Moving Average Convergence Divergence indicator (or "MACD," marked with black and gold lines and blue bars at the chart's bottom) isn't in good shape.

However, at least it looks like it's improving. The histogram of the 9-day EMA (the blue bars) is back in positive territory, which is mildly bullish.

The 12-day EMA (the black line) has also crossed above the 26-day EMA (the gold line). That's usually a short- to medium-term bullish signal, but both of those lines are so far below the zero-bound that I'm not sure how meaningful this technical indicator is.

An Options Option

Based on the technical indicators, some options traders who are bullish on Netflix in light of its chart might be employing what's known as a "bull-call spread" based on the gap between the stock's moving averages.

This consists of purchasing a call option while also selling a higher call option with the same expiration date. Here's an example:

-- Long one NFLX call with a Jan. 23 expiration (i.e. after next week's earnings) and a $93 strike price (i.e., near the 21-day EMA). This cost about $2.75 at recent levels.

-- Short one NFLX Jan. 23 call with a $101 strike price (i.e., near the 50-day SMA). This cost roughly $0.85 at recent prices. 

Net Debit: $1.90.

The options trader here would be trying to benefit from a bullish snapback by Netflix after next week's earnings. The maximum theoretical return on the trade would be $6.10 -- $8 less the $1.90 net debit.

Conversely, if the stock isn't above $93 at expiration, the maximum theoretical loss would be the $1.90 net debit.

Disclaimer: The information provided is NOT financial advice. I am not a financial adviser, accountant or the like. This information is purely from my own due diligence and an expression of my thoughts, my opinions based on my personal experiences, and the way I transact.

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