Netflix Inc.’s (NFLX) success over the past five years has been nothing short of spectacular, as revenues have more than doubled from $3.6 billion to $8.8 billion and its stock price has soared more than 800% to over $140 per share. With the stock trading near its 52-week high, some traders are concerned that the stock may be overextended and due for a retracement following its breakneck 40% rally over the past six month period.
These sentiments are bolstered by the departure of two key executives – its Chief Product Officer and Chief Talent Officer – as well as the growing competition from companies like Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG), and Hulu (a joint venture owned by traditional content firms). Comcast Corp. (CMCSA) is also rumored to be planning its own Netflix rival using NBC shows, which could capture further market share from Netflix.
Analysts also remain divided on the company’s original content strategy. Cowen & Co. recently reiterated their ‘Outperform’ based on the company’s investments in original content that could result in substantial subscriber gains. But, Baird analysts also recently warned that the lack of hit shows is hurting subscriber additions moving into the first quarter, making the opposite conclusions from the original content strategy.
On a technical level, the stock has been losing momentum following its highs made in late-March of this year. The stock is currently trading near its 50-day moving average at $143.01, while a breakdown from S1 support or its lower trend line at $140.00 could lead to a drop to its 200-day moving average at $117.93. Relative strength index (RSI) readings remain neutral at 50.32, but the moving average convergence-divergence (MACD) remains bearish.
The primary catalyst for any drop could be the company’s first quarter earnings, which will either prove Baird or Cowen & Co. right or wrong. The company expects to release its next earnings report on April 17, 2017 after the market closes for the fiscal first quarter ended March 31, 2017. Investors will be watching both top-line financial data, as well as new subscriber additions for signs of ongoing growth or a possible slowdown.
Charts courtesy of StockCharts.com. Author holds positions in stocks mentioned through passively-managed ETFs and mutual funds.