This month has been an amazing month for investors in Netflix: NFLX as they witnessed a rip in stock price due to their over-exceeding quarterly estimates by just over 10 million dollars. The price per share surged as investors jumped in to claim their share of the .13 cent EPS compared to their projected .12 cent loss. They have taken a competitive piece of the movie rights market and ventured into creating some of their own content like the release of "House Of Cards".
There are a few key factors to note when guaging the potential upside on the stock at this current price. House of Cards cost Netflix roughly 100 millon dollars for 2 seasons; taking this into consideration it is also estimated that Netflix reported in their 4th quarter of 2012 that they currently had a total of 27.1 million U.S. streaming customers. A current monthly membership for Netflix per month is $7.99 meaning that they would have to bring on direct revenue from 12,515,644 new members to break even on the venture. In the fourth quarter of 2012 they boasted that they brough on 2 million new members over that 4 month period.
With this being said do you think it was a wise investment for them to hinder a potential year and a half of subscription cash reserves for the new venture? I suppose the outcome of this tale has yet to unfold, but with that being said lets take a closer look...
In October of last year Netflix reported a sharp drop of 88% in total profits due to increased competition and the growing competitive nature in respect to content licensing. The stock went up based on them not losing significant stock value, not the fact that they set the world on fire since their Net Profit cliff jumped. Their P/E ratio is roughly 650 which is monsterous compared to their current valuation, and with fresh financials due out shortly where will this leave the stock price?
I personally think today the markets went up taking Netflix with it due to the Obama speech tonight and well... Lets call a spaid a spaid; The FED.. How would the president pitch his success story tonight on the economy and how Republicans want to ruin our run into the golden flower fields of Oz? Tomorrow will be the true test. As you can see I clocked the price channel earlier today and witnessed the slowing volume get rejected at a key level at the end of the day. The top of the current trend appears to be at the $184 to $185 mark as shown below on the annotated chart. Don't mind the crazziness of all of the lines this is the after product of my compulsive analysis while trading. Netflix has a long way to fall from its level in my opinion and with option puts like the 180, 175, and 170 ripe for trading this could be a 10 bagger if the volume subsides in the morning trading hours.