NFLX - Don't fall in love w/ this short pullback in Tech
Updated
I often question the headlines we see on sites like marketwatch. For a long time, I followed them - the news related headlines (such as economic events) pretty much played along w/ market sentiment...but it's the speculative articles that I have a real problem with. It's almost best to treat them as contraindicators - why? Because, almost all of their contributors have their own agendas. Case in point - all this news we've been hearing about the NASDAQ bottoming out from it's correction. NFLX presently has a P/E ratio of 109.16 - that's 4 times the average PE ratio of the Nasdaq mini 100 at 23.27 - and many of those companies also pay dividends and have much more solid balance sheets.
There's no doubt that NFLX has been the darling of the tech sector having risen more than 200% since the start of '17, but this Cinderella story is about to turn into a pumpkin due to mounting debt with the added negative of increasing borrowing costs, the tech giant AAPL entering the streaming market in 2019, and the stock price being vastly overvalued by a slew of rampant FAANG enthusiasts. Perhaps that's why the stock has fallen recently into the 270s from it's peak at $397 earlier this summer.
Just a hypothetical scenario, but apple could crush netflix with a single blow merely by pushing it's new streaming service and ceasing to carry the Netflix App. It's also true that a user could just go to Netflix site, but AAPL isn't the only one that could pull the rug out from under Netflix. More and more high speed bandwidth is being sucked up by an ever increasing appetite for 4k content thanks to 65" UHD Smart TV's that cost less than $500. Personally, I pay for a 400mbps connection through Spectrum that rarely sees > 100mbps due to fluctuations in demand. What happens when ISPs begin throttling Netflix connections to provide the speed demands their customers are paying for? Perhaps, as AT&T has planned, the data providers will begin their own streaming services - and they'll hold the key to the 4k and soon to come out, 8k content.
NFLX has been repositioning itself as a content provider, and so far 90% of their shows have flopped. As a subscriber, I enjoy a few of their documentaries here and there, but to be honest...their library doesn't have the latest movies and their own content is 'eh' at best. It's also the main reason NFLX has focused it's efforts on expanding subscribers overseas rather than in the US. Short of NFLX becoming the next HBO and producing some really top quality content like game of thrones, they won't hold their top spot indefinitely. With the bundling abilities and big hitters like AAPL and AT&T joining the streaming foray, expect subscribers to peak shortly thereafter and NFLX to rebrand itself (similar to their move from DVD rentals to a streaming service) or expect NFLX to go the way of Blockbuster over the next 4-5 years.
With regards to the short term outlook, expect NFLX to pull back into the 100s over the next year. Short of a few temporary pullbacks (like the +7% run up we saw today) - there's no reason to own the stock...increasing debt, increasing competition, no control over data providers, rising debt carrying costs, etc all point to the eventual demise of the company. There's also no advantages for a buyout, because let's face it - folks like AAPL, AT&T, and other content providers can get the content anywhere they choose.
Don't take my word for it. Just look at the putt-call ratio for the last few months. The sentiment towards NFLX is overwhelmingly negative, and that includes all FANNG stocks as well. NFLX is now one of the most shorted companies on the market (Top 10 in fact) because investors see the writing on the wall.
There's no doubt that NFLX has been the darling of the tech sector having risen more than 200% since the start of '17, but this Cinderella story is about to turn into a pumpkin due to mounting debt with the added negative of increasing borrowing costs, the tech giant AAPL entering the streaming market in 2019, and the stock price being vastly overvalued by a slew of rampant FAANG enthusiasts. Perhaps that's why the stock has fallen recently into the 270s from it's peak at $397 earlier this summer.
Just a hypothetical scenario, but apple could crush netflix with a single blow merely by pushing it's new streaming service and ceasing to carry the Netflix App. It's also true that a user could just go to Netflix site, but AAPL isn't the only one that could pull the rug out from under Netflix. More and more high speed bandwidth is being sucked up by an ever increasing appetite for 4k content thanks to 65" UHD Smart TV's that cost less than $500. Personally, I pay for a 400mbps connection through Spectrum that rarely sees > 100mbps due to fluctuations in demand. What happens when ISPs begin throttling Netflix connections to provide the speed demands their customers are paying for? Perhaps, as AT&T has planned, the data providers will begin their own streaming services - and they'll hold the key to the 4k and soon to come out, 8k content.
NFLX has been repositioning itself as a content provider, and so far 90% of their shows have flopped. As a subscriber, I enjoy a few of their documentaries here and there, but to be honest...their library doesn't have the latest movies and their own content is 'eh' at best. It's also the main reason NFLX has focused it's efforts on expanding subscribers overseas rather than in the US. Short of NFLX becoming the next HBO and producing some really top quality content like game of thrones, they won't hold their top spot indefinitely. With the bundling abilities and big hitters like AAPL and AT&T joining the streaming foray, expect subscribers to peak shortly thereafter and NFLX to rebrand itself (similar to their move from DVD rentals to a streaming service) or expect NFLX to go the way of Blockbuster over the next 4-5 years.
With regards to the short term outlook, expect NFLX to pull back into the 100s over the next year. Short of a few temporary pullbacks (like the +7% run up we saw today) - there's no reason to own the stock...increasing debt, increasing competition, no control over data providers, rising debt carrying costs, etc all point to the eventual demise of the company. There's also no advantages for a buyout, because let's face it - folks like AAPL, AT&T, and other content providers can get the content anywhere they choose.
Don't take my word for it. Just look at the putt-call ratio for the last few months. The sentiment towards NFLX is overwhelmingly negative, and that includes all FANNG stocks as well. NFLX is now one of the most shorted companies on the market (Top 10 in fact) because investors see the writing on the wall.
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NFLX falling after death cross on 5m charts. Expect continuation of strong down trend into the 270s over the next 2 days. Excellent opportunity for short term put price action.
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