The shares of the streaming service company collapsed with over 10 per cent yesterday after the release of muddled earnings data and meagre performance in terms of registered new paid memberships.
As it was noted in the weekly expectations update from Monday, Netflix’s share price has been struggling to break above the major resistance level at 386 for some time, and because of the amplified downside pressure, that has been impacting the stock price, it was argued that the release of Thursday’s earnings report was more likely to cause the price to tumble significantly.
The company went on the report a growth in revenue and also, the operating income increased with 53 per cent year over year in Q2. However, despite these strong growth data, the net income for Q2 was reported at 271 million, which is noticeably lesser than the 384 million that had been reported for the same period last year.
These reported results confirmed our assertions from Monday’s weekly expectations report, regarding the heightened difficulty with which Netflix manages to attract new customers.
“The competition for winning customers’ relaxation time is fierce for all companies and great for consumers. The innovation of streaming services is also drawing customers to shift more and more from linear television to streaming entertainment.” [source]
Despite the disappointing numbers, the company has recently released new and engaging content, which has created a lot of publicity in media and is likely to attract additional customers and is also going to be reflected on the earnings report for the next period. Netflix projects that:
“Q3 has started with Stranger Things season 3, and the first two weeks of Q3 are strong. […] While our US paid membership was essentially flat in Q2, we expect it to return to more typical growth in Q3, and are seeing that in these early weeks of Q3.”
Presently, the share price is finding strong support at 320 dollars, which was last tested in Late-January of 2019. Conceding that the company officials are correct in their estimations and the membership rate does indeed increase during the third fiscal period, the share price could indeed pick up from the current level and correct the recent losses.
Image source: Trendsharks ©, created with TradingView.com
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