Netflix Inc.

Netflix, Inc. (NASDAQ: NFLX) is an entertainment services company. The Company has paid memberships in over 190 countries with television (TV) series, films, and games across a variety of genres and languages. Its members can play, pause, and resume to watch, as much as they want, anytime, anywhere, and can change their plans at any time. It offers a variety of streaming membership plans, the price of which varies by country, and the features of the plan.

Recent Financial and Business Updates:

• Q3 Financial Performance: Netflix's Q3 financial results were either in line with or exceeded forecasts, with revenue reaching USD 8.5 billion, 9 million paid net additions, and an operating margin of 22.4%. For the full year 2023, the company anticipates an operating margin of 20%, which is at the upper end of its previously stated range of 18% to 20%. Furthermore, the company has raised its free cash flow projection for FY23 to approximately USD 6.5 billion, up from the earlier estimate of at least USD 5 billion. During Q3, Netflix repurchased USD 2.5 billion in shares and expanded its buyback authorization by USD 10 billion.
• Content Strategy: Netflix remains committed to enhancing its content offerings, focusing on high-quality originals and licensed titles from around the world. Notable Q3 releases included popular English-language series like "One Piece" Season 1, "The Witcher" Season 3, "Top Boy" Season 3, "Sex Education" Season 4, and "Love at First Sight," as well as local language successes like "Dear Child" (Germany), "Sintonia" Season 4 (Brazil), "Guns & Gulaabs" Season 1 (India), and "Class Act" (France).
• Q3 Results: In Q3 2023, Netflix achieved an 8% YoY growth in revenue, which was slightly above projections. This growth was driven by a 9% increase in average paid memberships, primarily due to the introduction of paid sharing, consistent programming, and expanding its global reach. Average revenue per membership (ARM) decreased by 1% YoY, both on a reported and foreign exchange (F/X) neutral basis. This dip was attributed to various factors, including a larger percentage of membership growth from countries with lower ARM, limited price increases over the past 18 months, and shifts in plan mix.
• Q3'23 Operating Performance: During Q3'23, Netflix reported an operating income of USD 1.9 billion, a 25% YoY increase. This outperformed the guidance forecast due to the upside in revenue and timing of content and other expenditures. Consequently, the company achieved an operating margin of 22.4%, up three percentage points from the same quarter a year ago. Earnings per share (EPS) for Q3 stood at USD 3.73, including a USD 173 million non-cash unrealized gain from F/X re-measurement on Euro-denominated debt.
• Future Projections: For Q4'23, Netflix projects revenue of USD 8.7 billion, an 11% YoY increase, or 12% on an F/X neutral basis. The company anticipates paid net additions similar to those in Q3'23. The global ARM for Q4 is expected to remain largely flat YoY, primarily due to limited price increases in the last 18 months and the strengthening of the U.S. dollar against other currencies. In terms of profitability, the company has updated its FY23 operating margin guidance forecast to 20%, at the high end of the previously estimated range of 18% to 20%. Assuming stable F/X rates, Netflix forecasts an operating margin of 22% to 23% for FY24.
• Monetization and Growth Strategies: Netflix's strategy for growth and monetization encompasses actions like paid sharing, scaling the ads business, and pricing adjustments. Paid sharing, implemented across various regions, has shown positive results, with a low cancellation reaction and borrower households converting into full-paying members or extra members. Pricing adjustments, while modest during the paid sharing rollout, remain part of the strategy, with a range of prices and plans available to meet different needs. Netflix has adjusted prices in the U.S., UK, and France. The company's ad membership is growing, with nearly 70% quarterly growth in Q3'23, accounting for approximately 30% of new sign-ups in ads countries.
• Cash Flow and Capital Structure: Netflix's financial strength continues to improve. In Q3, net cash generated by operating activities was USD 2.0 billion, while free cash flow totaled USD 1.9 billion. Year-to-date, the company has generated over USD 5 billion in free cash flow. The full-year forecast for free cash flow for FY23 is approximately USD 6.5 billion, up from the prior projection of at least USD 5 billion. Netflix's approach to content spending in 2023 was adjusted due to the WGA and SAG-AFTRA strikes, with expected cash content spend of around USD 13 billion. If the SAG-AFTRA strike is resolved, cash content spend is anticipated to reach approximately USD 17 billion in 2024.
• F/X Hedging: As Netflix's non-U.S. dollar revenue continues to grow, the company has initiated an F/X risk management program to mitigate exposure to fluctuations in foreign currency rates, which can impact both revenue and operating profit. This program aims to help Netflix balance its financial objectives without reacting abruptly to short-term F/X rate swings, ensuring that the company can continue delivering on its financial goals.

Technical Observation (on the daily chart)

The Relative Strength Index (RSI) observed over a 14-day period registers at 58.39, indicating a recovery from oversold conditions shooting high after Q3FY22 results release. Furthermore, the stock's current position is situated above both the 21-day Simple Moving Average (SMA) and the 50-day SMA, potentially acting as dynamic short-term support levels.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

The reference date for all price data, currency, technical indicators, support, and resistance levels is October 19, 2023. The reference data in this report has been partly sourced from REFINITIV. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by individual. Technical reports in general chart out metrics that may be assessed by individuals before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.