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Netflix has fallen over the past few months and has halved in share price representing a 50% decrease from $700 to $350 and has wiped nearly $150 billion in market value. Netflix had a volatile ride this year, during the market-wide sell-off due to interest rate fears and less than stellar earnings report. Netflix is down more than 34% YTD. It is important to highlight that Netflix was one of the highest-profile stars of the lockdown era, which helped boom stay-at-home shares. So, have investors and traders shifted sentiment and moved on from the so-called pandemic trade?
In their recent report of fourth-quarter earnings last month, the streaming giant beat on earnings per share and was in line with expectations on revenue. However, shares plunged more than 20% during after-hours trading, to their lowest levels since June 2020, this was primarily due to slowing subscriber growth.
Netflix added 8.28 million subscribers in the fourth quarter of 2021, analysts expected the company to add 8.13 beating analyst estimates. However, they gave a disappointing outlook for subscriber growth in Q1 2022. They expect to add 2.5 million subscribers in Q1 2022, far below the 3.98 million it added in Q1 2021.
A primary reason for Netflix’s success is that it has been the first company within the streaming space. The Co-founder and Co-CEO Reed Hastings believed that the internet was going to fundamentally change how people consumed video entertainment, so he positioned Netflix to invest aggressively to acquire as many customers as possible before other potential companies follow. Netflix has spent nearly $17 billion in cash on content in 2021, far more than any of its competitors.
It has currently increased prices in North America to help boost cash and finance new programs. The pandemic has led to higher commodity prices, supply chain issues, and labor shortages. Netflix has been able to consistently raise price prices over time while being able to retain customers at a remarkably high rate.
Based on 36 wall street analysts offering a 12-month price target for Netflix they gave a “BUY’ rating. With a high price target of $700, an average price target of $512, and a low price target of $342.
During early Jan 2022, Netflix’s share price breached the 200-day moving average and has slid further downwards representing nearly a 44% decline in share price. It looks like Netflix has found its support roughly between the range of $350-$400. It is currently trading below the 20-day moving average, if broken and accompanied by increased buying volume, then traders and investors should anticipate further upside movement to the second resistance level of $457. However, RSI remains in the oversold territory of 40%, signaling that we are still in a downtrend. A break below the key support level of $354 will result in further downside movement to the next major support level of $291.
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