• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Netflix Really Is a Cliffhanger, Isn't It?

Fresh off the Golden Globes and heading toward earnings, here's how to play the unpredictable NFLX.
By STEPHEN GUILFOYLE
Jan 06, 2020 | 12:29 PM EST
Stocks quotes in this article: NFLX, DIS, AAPL, AMZN, T, CMCSA, VIAC, SNE

As a consumer, I like Netflix ( NFLX) , but I must admit that when I watch streaming entertainment, which is not that often, Netflix is not my "go to." That would probably be Disney's ( DIS) ESPN+. Even for scripted entertainment, the shows I like at Netflix have dwindled. I find myself at Hulu -- again, a Disney service -- more often than Netflix. No -- I am not currently long on Walt Disney Company, though that firm, along with Apple ( AAPL) , Amazon ( AMZN) , AT&T ( T) , Comcast ( CMCSA) , and ViacomCBS ( VIAC) among others are all integral to future performance at Netflix.
 
All of these firms either compete for the streaming entertainment dollar, or soon will. That has already -- and likely will further squeeze -- margin going forward. Many of these firms operate a myriad of businesses and are cash flow beasts. This allows these firms to subsidize a growing business at a loss that really is still in the early innings to come out the other side. Not Netflix. This is what they do. Many of these competitors come with large libraries of existing content. Not Netflix. Oh, they are building a nice library of content, but must borrow to do so, and through no fault of their own, just do not have access to decades of legacy content. 
 
Basically, even more so than the competition, Netflix must grow to stay competitive and -- despite price increases that have proven somewhat successful in recent years -- that ship has now sailed. The question is just how large is the pie going forward. The size of the addressable market, I don't think will contract, as the rest of the planet gains access to the internet and as traditional cable television, though still lucrative, declines in popularity. 

The Good, the Bad, the Golden Globes

First off, the 2020 Golden Globe Awards apparently took place Sunday night. If that's your cup of tea, terrific, but I haven't watched an awards show since I was a wee lad knee high to a grasshopper, and if you happened to get famous after the 1980s -- unless you're an economist of a baseball player -- I have probably never heard of you. 
 
Back to these awards that have made the news cycle on Monday: Netflix was able to boast 17 nominations, the most of any single studio, but only brought home two trophies. That's less than the six awards won by either HBO, or Warner Brothers, both properties of AT&T ( T) . Disney and Sony ( SNE) , and ViacomCBS also came home with more hardware than did Netflix. Amazon ( AMZN) Prime brought home just as many -- two. Despite landing four films in two different categories for "Best Picture," Netflix landed neither award. 
 
The awards show, which is both and good and bad for Netflix, caps a month or so of ups and downs for the firm that generally saw the stock rise in value throughout. The firm has experienced both impressive growth in global subscriptions, and lagging domestic results in the U.S. This resulted in a downgrade in mid-December from Needham, as well as eye-popping success in growing the Asia-Pacific market. 
 
Netflix lost its second-most streamed television show (according to 2018 data) at year's end when AT&T brought "Friends" home for the expected launch of HBO Max late this spring. Then, on Friday, according to a report from SimilarWeb, daily active users of the Netflix app among Android users dropped 5.8% domestically, and 3.1% internationally, in just the fourth quarter, as the impact of Disney+ and Apple TV+ competed for viewers. 

The Numbers to Roll in Soon

Netflix will report the firm's fourth quarter financials in about two weeks. Consensus is for earnings per share of 52 cents, comparable to 30 cents for fourth quarter 2018, on revenue of $5.45 billion vs. $4.19 billion a year ago. These numbers, if realized look awesome. Still the stock trades at 59-times forward looking earnings. Operating margin has been solid at 18.7%, but as I said, I would think this comes under increased pressure. As of the end of the third quarter, the firm ran with a cash position of $4.44 billion, and total debt of more than $13.5 billion. Operating Cash Flow remains a negative. The firm's Current Ratio comes in at an anemic 0.73, and the Quick Ratio at 0.68. We really don't like to see these ratios print below 1.00. 
 

Plotting the Chart

 
As readers will see, Money Flow, and Relative Strength both look good. But the daily Moving Average Convergence Divergence has turned gnarly, as the shares ran into a buzz saw at the 61.8% Fibonacci retracement level of the July through September sell-off. These shares also seem to be struggling with deciding which side of the 200-day simple moving average, now $324, they want to live on. Early this morning, that line has offered support. 
 
I stand by what I told Katherine Ross in our interview at TheStreet last week. At this level, this is a tough name to choose a side on. I would rather just not trade the equity, and either play a direction, or simply volatility in the name through the options market. 

Earnings-Related Trade Idea (Minimal Lots)

Bear Put Spread
 
- Purchase one NFLX Jan. 24 $330 put for roughly $15.45.
- Sell (write) one NFLX Jan. 24 $320 put for roughly $10.70.
 
Net Debit: $4.75 
Best case: NFLX trades below $320 at expiration, the trader wins back $1,000, a profit of $525.
Worst case: NFLX trades above $330 at expiration, the traders loses the whole $475.
 
Note: For bullish traders, this strategy would work as a bull-call spread the same way.
 
(DIS, AAPL, AMZN, VIAC and CMSA are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells them? Learn more now.)
 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication,Guilfoyle was long AMZN, AAPL, T, VIAC equity.
 
TAGS: Entertainment | Investing | Stocks | Digital Entertainment | Stock of the Day | Earnings Preview

More from Stocks

Welcome to Second Semester on Wall Street, Here's How to Make the Grade

Jim Collins
Jul 1, 2022 4:36 PM EDT

Think you can own big tech? You might just get an 'F' for that. Here's what will get you on the other side of this year.

We Got a Break, but the Heat Is Still On

James "Rev Shark" DePorre
Jul 1, 2022 4:22 PM EDT

A limited rally cooled some of the negativity on the market, but guess what's going to hit the fan soon?

Coupang Could Make a Bigger Trading Bounce

Bruce Kamich
Jul 1, 2022 1:56 PM EDT

Here's where nimble traders could probe the long side.

Shares of Xencor Could Be Bought on a 50% Correction

Bruce Kamich
Jul 1, 2022 11:59 AM EDT

Traders should remain patient.

Let's Size Up the Market's Prospects for the Second Half of 2022

Bret Jensen
Jul 1, 2022 11:30 AM EDT

The next six months can't be worse than the first six, can they?

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:59 PM EDT PAUL PRICE

    Very good quarterly numbers from Bassett Furniture (BSET)

    Bassett Furniture (BSET) blew right through analys...
  • 04:41 PM EDT PAUL PRICE

    First Half Results - Putrid Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 marked...
  • 04:51 PM EDT PAUL PRICE

    We Should Be in for Better Starting Soon

    Window dressing Thursday, the last day of the...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login