The Netflix (NFLX) stock price has been in a major sell-off lately. The shares are trading at $510, which is about 27% below their highest level in November last year. This drop puts the stock in a bear market, which is defined as a period when a stock falls by over 20% from its peak.
Why have Netflix shares fallen?
The Netflix stock price has declined because of three main reasons. First, the decline has happened because of the recent change of tone by the Federal Reserve.
After two years of an aggressive easy money policy, the Fed has started to wind down its policies. It has already started tapering its asset purchases and hinted that it will implement three rate hikes this year.
As a high-growth tech stock, the Netflix stock price is highly exposed to the actions of the Federal Reserve. Investors tend to exit high-growth stocks when the Fed embraces a more hawkish tone.
Second, the stock has declined because of the increasing spending on content as competition rises. The firm is expected to spend over $18 billion in content this year. And analysts expect that it will need to boost its spending in the future in a bid to maintain its market share. As such, there is a likelihood that its profitability will be affected in the near term.
Third, the Netflix stock price has tumbled because of the expected slow growth in the company. Analysts believe that the firm will struggle to find another hit like Squid Game to attract more people to its network. Most importantly, consumers now have a choice from the likes of Disney+, HBO Max, and Discovery+.
Netflix has had other challenges. For example, the cost of movie production has jumped dramatically in the past few months partly because of the ongoing wage inflation.
Netflix earnings ahead
The next key catalyst for the Netflix stock price will be the upcoming quarterly earnings that come on Thursday.
Data compiled by SeekingAlpha shows that the median estimate is that the company will report revenue of over $7 billion and earnings per share of $0.83. In the same quarter last year, Netflix reported revenue and EPS of $6.6 billion and $1.19, respectively. Its profitability was strong in 2020 because the company gained more subscribers and lowered its costs.
The most important figure will be the company’s net customer additions. Analysts at Bank of America expect the company to report net additions of 8.6 million. They also expect the firm to predict another net addition of 7.3 million.
On their part, analysts at JP Morgan expect that the firm added about 6.25 million customers in the fourth quarter.
Another key catalyst for the Netflix stock price will be the management talk about its recent price increases. The firm announced that it will hike its basic plan price to $15,49 a month; The other package will rise to $19.99 from $117.99.
Netflix stock price forecast
The daily chart shows that the NFLX stock price has been in a strong bearish trend in the past few months. Along the way, the stock managed to drop below the important support level at $593, which was the highest level in January 2021. The 50-day and 100-day moving averages have made a bearish crossover while oscillators have turned south.
Therefore, while the overall trend is bearish, we can’t rule out a situation where the Netflix stock price jumps after earnings.
