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For the tenth time this year, Netflix’s stock price has failed to hold above the $560 level. The big question now is whether this week’s earnings report will push NFLX to a new all-time high.
On Friday, Netflix (NASDAQ: NFLX) closed at $530.31, down $12.64 (-2.33%). The world’s largest video streaming service has not performed as well in 2021 as it did in 2020. In fact, Friday’s closing price was $8.5 below its opening trade on January 4th. Over the last 12 months, NFLX has gained just 4.45%, significantly underperforming compared to the NASDAQ 100, which has returned 15.60% year-to-date and 40% over the past year.
It’s important to note that 2020 was a unique year for Netflix, as global lockdowns likely accelerated future demand, with stay-at-home policies driving people to seek entertainment at home. This impact is evident in Netflix’s second-quarter user growth projections. While the company added 10 million new users in the second quarter of 2020, it projects just 1 million new users for the same period this year.
The entire movie industry has also been hit hard by pandemic-related production delays and is only now starting to produce new content again. However, Netflix has announced plans to invest more than $17 billion in original content, aiming to expand aggressively. The second half of this year will see the return of popular shows like *The Witcher* and *Stranger Things*.
The key factor for Netflix’s stock price will be user growth. The company is projecting just 1 million new users for the quarter, and investors will be hoping that Netflix is setting a low bar to exceed expectations. Last year, during the same period, Netflix added 4 million users, which was below the expected 6 million.
Looking at the daily chart, NFLX has been trading sideways within a wide $460-$590 range for the past year. The stock has only closed above $560 four times during this period, making it a significant resistance level. This was confirmed by Thursday’s high of $557.54, which triggered a 5.5% decline by Friday’s close.
At $557.54, the Relative Strength Index (RSI) indicated that the stock was overbought, printing above 70 and suggesting that momentum had become stretched. Additionally, the 100-day moving average at $516.70 recently crossed below the 200-day moving average at $517.09, further highlighting the lack of upward momentum in recent months.
Below the 100-day and 200-day moving averages sits the 50-day moving average at $508.20. A break below this level could signal a move towards the support of a 10-month ascending trend line, visible around $480.00, which should be considered a crucial support level. If Netflix fails to hold this level, the next target could be the March 2020 high of $393.00.
However, if subscriber growth exceeds expectations, Netflix’s stock price could follow suit. In that case, the key level to watch is $560.00. A decisive break above this level could open the door to the all-time high of $593.50. Given NFLX’s recent underperformance, the stock could comfortably exceed this target if user growth supports it.
All in all, Tuesday’s earnings report should be pivotal for Netflix’s stock, potentially leading to significant movement in either direction.