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Netflix may hit critical point of business very soon

The stock could be poised for a big move higher or lower.

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MUMBAI: Netflix may soon witness a crucial moment in its business soon. After William Blair analyst Ralph Schackart said on Monday that the stock can rise 22 per cent by the end of the year, shares of the streaming giant gained more than 3 per cent.

Since the gain in stock in the first two weeks of 2019, Netflix stock has been stuck in a tight trading range without actually moving towards higher or lower direction. Hence, Monday’s suggestion has come as a significant boost to the OTT platform.

According to a report from CNBC, research firm Bespoke said that this is Netflix’s tightest trading range on record and after such a long period of consolidation the stock could be poised for a big move higher or lower.

The report also added that another analyst, Fairlead Strategies’ Katie Stockton is predicting a higher move as the stock has reached oversold levels. Moreover, the media giant is also trading above its 200-day moving average which she believes also indicates the continuation of a long-term uptrend.

“There are a couple of things working for the chart. It’s in a long-term uptrend. We do tend to look at ranges within long-term uptrends as continuation patterns, and of course strong support and a strong tape,” she said as quoted by CNBC. But according to her, the stock needs to surpass $387 to climb even higher.

“We need to see some kind of breakout of course from this range for a positive long-term technical catalyst, but Netflix is oversold after having underperformed, so it’s at this proving ground right now on its chart,” she added.

While Netflix, the most expensive of the FANG stocks, trades at 78 times forward earnings, Point View Wealth Management’s John Petrides thinks the valuation is unjustified because of slowdown in subscriber growth and an increase in streaming competition.

“The market knows that they have a first-mover advantage in streaming, but that’s really discounting very high future cash flows,” he commented as quoted by CNBC. He also thinks that Netflix is in an unfavourable position compared to peers in terms of content as “they don’t have a library” and instead buy original content.

“They’re burning through $2 - $3 billion a year in free cash flow. The moment that stops is when I think ironically the valuation comes flying out of the stock,” he added.

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