Netflix Stock Has a Lot to Prove This Week

The only thing that Netflix (NASDAQ: NFLX) investors can be sure of is that their stock will be on the move this week. The company behind the world’s leading premium streaming video service reports financial results shortly after Tuesday’s market close, and the stock isn’t going to stand still in Wednesday’s trading.

© Provided by The Motley Fool Netflix Stock Has a Lot to Prove This Week

Six months ago the stock soared 17% — hitting an all-time high that continues to stand today — the next trading day after posting blowout fourth-quarter results. Three months later the shares tumbled 7% the day after posting a mixed first-quarter report. Where will Netflix go this week? Let’s size up the new media darling’s own guidance before sizing up the way the market will react. 

© Getty Images A person on a couch channel surfing with a remote in hand.

Stronger things 

Netflix has historically been conservative with its quarterly forecasts, but it has proven mortal at least once a year in the past. We saw this happen last time out, as Netflix fell 2 million subscribers shy of its first-quarter target. It also disappointed the market by modeling just 208.64 paying streamings subscribers worldwide by the end of June, a mere 8% increase from where it was at the midpoint of last year. Back in January it thought it would’ve topped 209 million accounts by March.

Things are holding up much better on the top line. Back in mid-April it was eyeing $7.3 billion in revenue for the second quarter that it will make official on Tuesday afternoon, a 19% year-over-year increase. Revenue is growing faster than the audience count as pricing adjustments over the past year have helped improve Netflix’s monetization. 

A failure to exceed expectations and weak subscriber guidance tripped the stock up in April, so naturally that’s the key to a positive market reaction on Wednesday. Thankfully for those long the stock it’s not the only lever at Netflix’s disposal. 

Reports surfaced late last week that Netflix is ready to add a gaming component to its streaming platform. Adding cloud-based gaming to its app can increase stickiness and engagement. It’s something that investors should get excited about because if successful it will give it even more pricing flexibility. 

On a smaller scale, Netflix recently rolled out a merchandise storefront. There’s no way the limited offerings there at the moment are moving the needle, but if Netflix paints a rosy scenario of where it can take its merch game in the coming months it could rally more bulls around the stock. 

There was also one of the more prolific analysts following Netflix suggest that Netflix is leaving $14 billion annually on the table by not pursuing advertising opportunities. She was just thinking out loud. Netflix has been adamant about keeping marketing missives out of its streams. However, in this era where connected TV advertising rates are rising as marketers try to reach consumers in new ways it would naturally be a big boost for Netflix stock if the company even mentioned that it’s at least exploring the possibilities. 

There are a lot of catalysts that can send the media stock higher. Naturally falling short of its earlier forecast or offering ho-hum guidance will send the shares moving the other way. The stock will be moving all week, but it will be particularly volatile on Wednesday. Once again, Netflix has a lot to prove this week.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

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