Interactive Investor

Chart of the week: are Netflix shares a buy after 70% fall?

30th May 2022 13:39

John Burford from interactive investor

With the shares down and subscriber numbers falling, technical analyst John Burford considers the outlook for the streaming giant.

Last week I asked if Amazon (NASDAQ:AMZN) was a buy at its 45% discount? Today, I am asking the same question of Netflix (NASDAQ:NFLX) – another FAANG gang member, but it is at a more hefty 72% discount.

Investors certainly fell madly in love with this mammoth of the TV streaming sector during the pandemic as many workers were forced to go on furlough and were being paid to sit on their couch watching Netflix (or playing meme stocks such as GameStop (NYSE:GME)).

Now that the pandemic is over, many former film addicts have cancelled their memberships and moved on, and this has resulted in a drop in subscribers. The latest company report says that customer numbers will continue to fall this year.

Not only that, but budgets for productions are rising rapidly in the war with rival platforms for eyeballs (in a deja vu of the year 2000 dot-com mania where eyeballs figured prominently).

So, here we are with bullish sentiment practically non-existent and lay-offs in the works, the shares are down a stunning 72% off the November all-time high at around $700.

Past performance is not a guide to future performance.

With this size of loss, the decline is surely discounting a lot of future negative news. As a potential money-spinner, the company is very controversially planning to introduce advertising. And other platforms are looking at acquiring gaming systems to diversify.

Surely, the still-huge customer base can be leveraged with smart moves by the company?

Currently, the general US market is also working lower, but is similarly poised to stage a relief rally. A decent level of short interest in the shares has been building up, and an advance here should send the shares up and towards my target around $280. After that, I am not sure of the direction if the much-anticipated recession comes to pass. But currently, a relief rally of some size can be expected.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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