Traders tune in to Netflix

Netflix’s numbers will be carefully watched as the stock has had a stellar year.

Netflix
Source: Bloomberg

The company will announce its fourth-quarter results on the 19 January, and traders are expecting revenue of $1.82 billion and earnings per share (EPS) of 7 cents. That compares with the third-quarter revenue and EPS of $1.7 billion and 11 cents respectively.

On a full-year basis, investors are anticipating revenue of $6.78 billion and EPS of 40 cents, these forecasts equate to a 23% jump in revenue and a 49% fall in EPS.

Netflix keeps expanding its customer base and recently it went live in an additional 135 countries, bringing its total to 190 nations. The service still has some way to go yet as it is only available in English in a number of counties for now, but plans are in place to provide the streaming service in the local language.

China is on Netflix’s radar due to its population size, and if and when that is cracked, it will be a turning point for the firm. Netflix keeps cranking out quality TV and film programming, and the company is ramping up its own content production. Now, the in-house content is approximately breaking even, but the company aims for it to be profitable by 2017.

Price valuation

 

Trailing 12M Price/Earnings

Forward 12M Price/Earnings

Price/Book Value

Dividend Yield

Netflix

283.87

660.86

21.11

N/A

Facebook

99.36

37.05

6.71

N/A

Alphabet

34.24

22.31

4.33

N/A

Amazon

859.42

132.13

21.54

N/A

NASDAQ 100 (Tech 100)

21.56

17.37

4.27

1.26%

S&P 500

17.19

15.61

2.59

2.29%

 

Netflix has a very high valuation compared with the darlings of the tech sector, going by the trailing 12-month price/earnings ratio and the price to book/value figure. The astronomical forward-looking P/E ratio for Netflix is pointing to a decrease in future earnings.

Amazon is arguably the most similar company to Netflix because of its video streaming service, but at least its projected P/E implies an increasing in earnings. The broader S&P 500 proves to be better value for money than the NASDAQ 100, and Netflix is an extremely highly valued stock in an already highly valued sector.

Shorters beware

Netflix’s high valuation has led to traders trying to call the top, but short-sellers beware. Since Netflix posted its third-quarter numbers, the short interest on the stock has increased by 4.3%, and it is worth pointing out the stock hit a record high in that time period. Since January 2015, the number of short positions on Netflix grew by 13.4% and during that time period the stock rallied by 65%.

Brokers are buyers 

 

Buy Ratings

Hold Ratings

Sell Ratings

Netflix

24

18

4

Facebook

47

4

1

Alphabet (Google’s parent company)

46

5

0

Amazon

40

8

0

 

Investment banks are very bullish on Netflix, but they are extremely bullish on some of its tech peers. The average target price for Netflix by equity analysts is $124.65, which is 16% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG
Netflix shares have been on the wane in 2016, following on from a somewhat underwhelming December which saw shares pull back heavily from the all-time high of $133.22. The trendline break seen last week is perhaps simply a nod to those wondering whether this selloff will last.

However, the key here is the ability to break the November low of $101.91. Two long lower shadows hint that perhaps it could be a step too far, yet the existence of an earnings report could provide such a move. A close below $101.91 would provide a more bearish outlook for the coming months, with $93.82 and $85.66 the next major support levels.

However, for a longer term bearish outlook to emerge, we would need to see a close below $85.66, which would complete a double-top, with a subsequent projected target of $38.09. Unless that happens, the current pullback looks more like a consolidation, set within a long-term uptrend.

How long it goes on for remains to be seen, but the $101.91 level will be crucial to sentiment going into this key earnings report.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.