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Netflix stock price analysis: the technicals could forecast higher prices next month

The seasonal returns of the company are usually strong in August

Netflix reported Q2 financial results that missed on the bottom line despite a surge in the number of users that watched during “shelter in place” orders in the second quarter. Unfortunately, the number of new customers the company expects to sign-up in Q3 was less than half of what analysts expected. The miss on the bottom line was due to a one-time charge in California related to research and development tax credits. The company beat on the top-line and global paid net-subscribers. 

Netflix earned $1.59 per share compared to expectations that the company would make $1.81 per share. Revenue was $6.15bn versus $6.08bn expected. The company reported that global paid net subscriber additions were 10.09 million versus expectations that it would sign up 8.26 million. Netflix provided Q3 revenue guidance of $6.33bn, below analyst estimates of $6.40bn. The company expects Q3 earnings of $2.09 per share, above analyst estimates of $2.01. The key metric that investors focused on was forward guidance for new net subscribers which was 2.5 million compared to expectations of 5.27 million.

The seasonals are positive

The seasonal returns of Netflix are generally strong during August. During the past 10-years, the stock price has experienced positive returns 70 per cent of the time with an average gain during the month of 4.8 per cent. This follows a weak July when the stock price is generally down 60 per cent of the time but usually gains 0.8 per cent. Implied volatility on the stock remains elevated hovering near 65 per cent. The average during 2019 was closer to 40 per cent. This means that investors are concerned that the stock price might whipsaw.

Netflix stock technical analysis

The stock price tumbled 11 per cent in after-hours trading following the Q2 earnings results. Short-term momentum has turned slightly negative, while prices are overbought. The weekly RSI  hit a trend high of 78, which is above the overbought trigger level of 70 and it could foreshadow a correction. The move lower on the RSI reflects decelerating positive momentum. The fast stochastic generated a crossover sell signal in overbought territory which also reflects decelerating positive momentum. The current reading on the fast stochastic is 87, above the overbought trigger level of 80 which also could foreshadow a correction. Medium-term momentum remains positive as the MACD histogram prints in the black with an upward sloping trajectory which points to higher prices.

The bottom line

Netflix has experienced volatility around earnings in the past. Support is seen near the 10-week moving average near 459. Short-term momentum has stalled but medium-term momentum remains strong. The seasonals look positive in August, which bodes well for the share price. Look to purchase shares near the 10-week moving average and ride the trend higher in August.

Daily change
Low: 485.97
High: 498.75

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