Not so long ago, reports circulated that Netflix had lost 970,000 subscribers. Then there were the circulating fears that subscription price hikes, advertising content, greater restrictions on sharing, and failing Netflix Originals would be the end of the streaming giant. And yet, here we are seeing NFLX rocketing 32% in the last 6 weeks with no signs of slowing down. What is prompting the bull, and will it continue?
The password crackdown strategy
Netflix began sending emails to members, informing them of the changes to its sharing guidelines, emphasizing that accounts should only be shared within the same household. Millions of freeloading Netflix fans found themselves without Netflix overnight. After notifying subscribers about the new password-sharing policy, Netflix experienced four of the highest days of U.S. registrations in history, topping almost 100,000 sign-ups on multiple days. And NFLX started a bullish rally.
The correlation between Netflix subscriptions and stock prices is quite convincing until the November 2021 crash. The dramatic 74% drop down to $172 (USD) is still a mystery that defies technical and fundamental analysis. The media blamed low revenue report speculations, which turned out to be unfounded. Netflix's annual revenue for 2021 was $29.6B, an 18.81% increase from 2020, which was also a positive year for the company.
This growth is fairly reliable. Every single year since the birth of Netflix, subscriber levels have been rising, with the exception of a brief and insignificant drop in Q2 2022. Quarterly reports show net revenue for 2021 at $7.4M, rising to $7.7M. 2022 showed more gains to $7.9M. Neither annual revenue nor quarterly net revenue was affecting share price, and the subscription levels didn’t reflect the price dip at all.
Whatever caused the monumental loss of confidence could only have occurred in a severely overbought scenario, suggesting institutional entities with large investments may have been involved. The deep correction created a buyer's market, and with subscribers and revenue both on the rise, the markets reacted energetically. Neflix’s password crackdown gamble has paid off, and Netflix is now enjoying the much-needed cash flow. Everything seems to be on the up.
Trading Netflix in the long term
While subscriptions and net income are rising, there’s plenty of negative sentiment regarding the content that Netflix has been producing. Should traders factor show success into their analysis? After all, Google’s A.I. failure tanked GOOGL in a single day. Even TSLA dipped temporarily when Musk broke the unbreakable window.
With multiple new shows canceled after just one season, and some successful titles drawing to an end, viewers may soon find themselves bored of the Netflix offerings. 2023 is the year Netflix shows will be more global than ever before, with the majority of new releases being dubbed for English-speaking audiences. Non-English content is known to have a smaller footprint on their biggest client base, the U.S., and both subscription numbers and stock prices may be affected in the long term.
Conclusion
There are no blockbusters running on Netflix or coming any time soon, which may well take a heavy toll on subscriptions in the future. But for now, Netflix's stock price remains positive along with its subscription levels. Despite the bullish short-term signals, keep in mind that downturn fears may also factor into NFLX this year. Recessions are known to hit the entire stock market, even the healthy companies, so until the uncertainty surrounding the global economy subsides, we may not see any more significant gains.
If you’re planning to trade NFLX, it is strongly recommended that you follow Netflix-related news and NFLX price actions on your mobile with the Exness Trade app.