In the midst of the recent market chaos, it’s important not to forget that we are entering another round of corporate earnings. One of the most anticipated quarterly reports this season will come from online streaming giant Netflix, Inc. (Nasdaq: NFLX).
Netflix will release it’s third-quarter results after the close next Thursday. As usual, all eyes will be on Netflix’s subscriber growth.
In the second quarter, Netflix said it added just 5.15 million new subscribers, below guidance for 6.2 million and well below growth of 7.41 million in the first quarter. CEO Reed Hastings called the miss a blip.
In Netflix’s second-quarter conference call, Hastings cited “some lumpiness in the business.”
“We’ve seen this movie of Q2 shortfall before, about two years ago in 2016,” Hastings told NFLX stockholders. But the comments failed to smooth out investor confidence. NFLX stock plummeted more than 16 percent following the miss.
Despite the poor subscriber numbers, Netflix beat both revenue and earnings expectations. In fact, Netflix has topped the consensus earnings estimate in each of the past three quarters. Revenue growth has averaged roughly 30 percent for the same time frame.
Overall, the company continues to thrive on original content, pouring billions into content generation. Netflix recently launched new seasons for “Orange is the New Black” and “Marvel’s Iron Fist.” The company also tied HBO’s number of wins in the 2018 Emmys.
With such solid offerings, it certainly looks like last quarter’s subscriber growth could be a blip on the radar. However, growth expectations for the current quarter are high. The consensus will be looking for 5.32 million new subscribers on the quarter, more than Netflix’s own guidance for 5.0 million.
Digging into the numbers further, Wall Street is looking for earnings of 68 cents per share on revenue of $4 billion. In the same quarter last year, Netflix earned 29 cents per share and revenue of $2.98 billion.
Getting Technical on Netflix
The recent market pullback has pushed NFLX stock below key support at its 50-day and 200-day simple moving averages. In fact, Netflix shares are off more than 17 percent so far for the month of October. NFLX is also down nearly 32 percent from its June all-time highs.
There is still some concern about the overall strength of the market, but NFLX stock could be a bargain at current levels. The stock’s 14-day Relative Strength Index (RSI) is near oversold levels at about 32. What this means is that sellers are nearly exhausted at this point, and that buyers and bargain hunters could begin moving in.
This is especially true with earnings looming large next week. If you’ve got a stomach for risk, picking up NFLX right now could pay off big. But if subscriber growth misses expectations again, it would confirm the flood of negativity that followed the stock after last quarter’s report.