Netflix Stock at Tough Juncture Ahead of the Q3 2023 Earnings

Netflix Q3 2023 Earnings Preview

The last earnings season of the year is well underway as major US banks released strong results last week and Delta Air Lines reported a surge in profits, but lowered its outlook due to rising fuel costs, which could be aggravated by the Middle East conflict.

Focus shifts to the tech sector this week, as EV King Tesla reports on Wednesday October 18, after Wall Street closes. Tesla Motors Inc saw its deliveries and output fall in the third quarter despite continued price cuts, while the long-awaited Cybertruck remains elusive. Streaming pioneer Netflix, also releases its results on the same day.

After the adversities of 2022, Netflix had to rethink key aspects of its business. It implemented a new password sharing policy and added a cheaper subscription option that includes commercials. The strategic changes are working, since they fueled higher subscriptions and record revenues in Q2 2023.

Investors now turn to Wednesday's Q3 results to gauge the evolution of these initiatives and see if the streaming leader can build on the momentum. The company expects an increase in revenues of 7.5% y/y, but does not offer guidance on the progression of its user base. Antenna's research showed that although additions fell in July, compared to the June surge, they remain elevated. ^[1]

We are also looking forward to see if Netflix announces or hints to any tier and pricing changes, to follow the hikes of some of its competitors. Live sports remain a focal point for me, which the streaming leader lacks, but many of its rivals offer. It will also be interesting to see if there are any questions around a FAST service, which could be the next logical step after the ad-supported tier, to cater to price-pinched consumers amidst a saturated market. This stands for free ad-supported streaming television, similar to traditional TV, where the viewers tune in to watch whatever is on at that time.

The new quarterly report comes at a period when everything seems to be working in its favor, while legacy entertainment giants struggle. Disney, its main streaming rival, lost subscribers again in the last quarter, undergoing a difficult transitional period. Netflix however has to compete with tech giants like Apple and Amazon.com, who are making stride on streaming. They have been producing hit and critically acclaimed shows, while their deep pockets allow them take risks and pay for sports deals that can attract subscribers.

Stock Analysis

NFLX.us had tanked in H1 2022 after the shocking subscriber losses, but has been recovering since and the first half of the current year was the total opposite. The firm's strategic changes propelled NFLX.us around 50% higher in that period, also helped by the brooder tech rally due to the AI boom, slowing Fed tightening and easing inflation.

Despite the strong second quarter results, the stock fell in the immediate aftermath, as Wall Street sentiment begun to sour and the Fed's higher for longer narrative started to get traction. NAS100 dropped nearly 3% in Q3 and NFLX.us shed more than 14% and has also made a poor start to the fourth quarter.

The stock has moved below the EMA200 (black line) and closed Friday below the 38.2% Fibonacci of its May 2022/July 2023 rally, bringing this year's lows in the spotlight (285.19). On the other hand, the Relative Strength Index (RSI) points to overbought conditions, which could give NFLX.us the opportunity to regain the initiative. The upside does not look particularly friendly though, with a falling Ichimoku Cloud preceding the July's 2023 peak (483.52).

Wednesday's quarterly results will be key for the stock's trajectory. If the strategic initiatives can continue to drive subscriber and revenue growth, the stock can benefit. The external environment is also important and an improvement would be needed to help Netflix and the broader tech sector out the third quarter doldrums.