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Netflix’s share price has dropped over 7% in premarket trading, falling to $490 from yesterday’s close of $520. This is also below its all-time high of $575.
During the pandemic, Netflix has thrived as more people have stayed home and turned to the platform for entertainment. The company added over 10 million new users globally in recent months, boosting its user base significantly.
The pandemic has also had a financial benefit for Netflix. With large gatherings on hold, the company has saved on content development costs while still adding millions of users. This efficiency has helped Netflix’s share price climb more than 55% this year and over 20% in the past three months.
In its recent earnings report, Netflix announced it made $6.15 billion in revenue for the second quarter, up from $4.92 billion in 2019 and surpassing the analysts’ forecast of $6.08 billion. Its profit also increased to $720 million, compared to $271 million last year.
A notable change in leadership is Ted Sarandos being promoted to co-CEO. This move signals that Netflix is preparing Sarandos to eventually replace Reed Hastings as CEO. The company praised Sarandos for his innovative content strategy, which has been crucial to its success.
Investors are questioning whether Netflix stock is too expensive. Currently valued at over $231 billion, Netflix is the largest media company globally, surpassing Walt Disney, which is valued at $217 billion.
Netflix’s forward P/E ratio is 60, making it pricier than competitors like Disney and Viacom, which have P/E ratios of 5.7 and 38, respectively. The company also has over $5 billion in cash and short-term investments but carries more than $14 billion in debt.
Analysts are divided on Netflix’s future. Pivotal Research maintains a buy rating with a target of $600, while Rosenblatt sets its estimate at $400. Stifel, Credit Suisse, and Morgan Stanley have target prices of $500, $525, and $575, respectively. On the more cautious side, Wedbush predicts a drop to $220.
The daily chart indicates that Netflix’s share price has been on a downward trend recently. If the stock opens at $488, it will be the lowest level since July 6 and below the 23.6% Fibonacci retracement level.
Despite this, the stock remains above the 50-day and 100-day exponential moving averages and the ascending trend line connecting the lowest points from March 18, June 12, and June 29. As long as the price stays above this trend line, the upward trend is expected to continue.
However, if the stock falls below $450, this could disrupt the upward trend. This level is also near the 38.2% retracement level, making it a key psychological threshold.