You should probably circle Tuesday 4:05 p.m. In your calendar for what’s likely to be the most crucial company-specific catalyst of the week, and perhaps for the entire earnings season.
That’s when streaming behemoth Netflix, the “N” in FAANG, and its $140 billion in market value, goes under the microscope with its much-anticipated third-quarter earnings report. Here’s why you need to pay attention:
1) It’s the first of the FAANGs to report, so it could set the tone for tech earnings season given the recent implosion in the sector
2) It’s a momentum stock with relatively high hedge-fund ownership that’s been under duress with the rest of them since the beginning of the month (NFLX -14% in October, second worst in the NYSE FANG+ Index); see Thursday’s Taking Stock for more on the bloodbath in the hedge fund hotels
3) It’s one of the best performers in the S&P 500 this year, up almost 70%, but it’s also testing its 200-day moving average for the first time in more than two years (see chart below)
4) And most importantly, last quarter’s subscribers miss shocked the financial community — NFLX tanked as much as 14% the next day and hasn’t recovered ever since — and the consensus is that the company can’t afford to whiff again; Macquarie echoes this: “A second straight subscriber miss would likely be taken very negatively by the street, and we would expect a more protracted decline in the share price than we saw in seasonally weak Q2.”
And just this morning, Citi has decided enough is enough and raised its rating on Netflix to a buy on valuation, noting that the setup into earnings is attractive as buy-side expectations for 4Q guidance is already “sufficiently low/conservative.”