To The Moon

Fundamentals overview

Q3 Review: Netflix added 8.76 million new subscribers in Q3, beating the company's expectations, largely thanks to its ad-supported program and efforts to crack down on password sharing in North America. Subscriptions to advertising packages grew 70 percent sequentially.

The year-over-year decline in ARPU(average revenue per user) was small, mainly due to subscriber growth in developing countries and regions, which offset the decline in overall subscriber averages. Revenue increased 7.8% year-over-year to $8.54 billion, and quarterly operating margin was 22.4%, beating consensus of 22.1% and up from 19.3% last year.

Netflix shares rose 65.1% in 2023, rising for three straight months after Q3's release to reach their highest point since January 2022.

Q4 Review: Netflix will report fourth-quarter and full-year results on Jan. 23. During Q3's earnings call, management did not provide clear user guidance, but Q4 growth is expected to be similar to Q3.

Netflix management expects Q4 revenue to grow 11% year-over-year to $8.7 billion. The company also raised its margin guidance, expecting an operating margin of 20 percent for the full year 2023, compared with its previous forecast of 18 percent to 20 percent.

Free cash flow last quarter was $1.89 billion, significantly better than expected, in part due to lower content spending due to the Writers Guild of America strike action in 2023. Netflix has raised its full-year 2023 free cash flow target to $6.5 billion from $5 billion.

Technical analysis

Netflix is in an uptrend channel in the medium to long term. The subscription fee increase increases investor confidence in Netflix's ability to maintain high growth at this stage, indicating growing investor optimism and pointing to continued upside. The stock is now above the $475 resistance level. This portends further price rises. If there is a pullback trend, $475 will be the support level.

Historical statistics

As shown in the chart, the absolute average return of Netflix's stock price in the week before the earnings report was ±4.7%. The absolute average return on earnings day was ±11.9%. In seven of the 12 previous earnings releases, Netflix's stock price fell after the release. Based on the 12 previous earnings releases, Netflix was more likely to move higher on the first day after reporting results, with an average gain of 0.1% and an average gain of ±2.1%.

The expected move in the option price was ±9.2%, while the actual move was ±9.7%. The highest price change is +20.1% and the lowest price change is -39.0%. In 55% of backtest cases, the straddler option lost value that day. On average, options straddles have a 1-day return of +12.0%, with a median return of -4.7%. The best return for the straddle option was +234.2%, while the worst performance was -76.0%.

Options trading strategy

Diagonal put Spread strategy: (80% win rate)

Profit conditions: After the earnings report, Netflix's stock price can be profitable above 456.63.

Sell: $NFLX 20240126 480.0 PUT$

Buy: $NFLX 20240216 445.0 PUT$

Buy the 25-Delta Straddle (42% win rate)

Profit conditions: After the earnings report, Netflix's stock price is lower than 440.78, or higher than 521.36.

Buy: $NFLX 20240202 522.5 CALL$

Buy: $NFLX 20240202 445.0 PUT$