By: Katie Gomez

Is Netflix a new meme stock? Netflix, the streaming behemoth that once dominated the entertainment landscape, has been on a rollercoaster ride in recent years. After facing significant challenges in 2022, including subscriber losses and increased competition, Netflix has been quietly staging a comeback in 2023. But is this resurgence based on solid fundamentals, or is Netflix potentially becoming the next “meme stock”?

Most investors have stories behind an investment. Many people come to the stock market because they are set on making a profit from specific stocks or have certain companies in mind. However, just because we like to consume a company’s product does not mean the stock is a sound investment. It’s easy to convince ourselves to invest when it has strong fundamentals. But sometimes, we fail to see what supersedes the fundamentals—the technical data. 

Traders can be incredibly stubborn regarding their convictions. While confidence is admirable, avoiding what the chart says can be a painful experience. In other words, when the chart does not confirm the story, you are on a sinking ship. The market doesn’t care about anyone’s opinion but about evidence. 

You have to be willing to wait for the chart pattern (footprints in the sand) to tell you what the herd thinks and where the stock is headed, as other factors make a trade successful. Are traders feeling pessimistic or optimistic? Are the bears or the bulls leading? How is the economy looking? The market and traders have a symbiotic relationship, but getting on the same wavelength can sometimes take time. 

You might have heard the story of Netflix being the next in line to take the meme stock throne, and you might like the product as your sole streaming service, so you believe it to be true, but the market doesn’t believe stories. The market believes in data and whatever the data is saying. Even though you worry that the stock will gap up the moment you sell, know that it’s okay to let it go because an even worse fate is that the stock will never catch on, and you lose everything. That said, the only trader you can control is yourself. You are already waiting and losing money, and the odds are better that you will continue to lose money waiting than the stock miraculously shooting up overnight. 

The Netflix Story vs. The Chart

While many investors are familiar with Netflix’s story – its innovative streaming model, vast content library, and global reach – it’s crucial to examine whether the current stock price aligns with this narrative. Netflix’s stock has seen a significant uptick in 2023, but does the chart confirm the bullish story many investors believe?

Technical Analysis: What the Chart Says?

While it’s easy to follow the herd mentality, it’s much more complex to gather evidence of your own. Your friend might confirm the story; does the chart? Do you have a valid reason to add this stock to your portfolio, or are you just blinded by the hype? 

Looking at Netflix’s recent chart, we see some interesting patterns:

1. Breaking the Downtrend: After a prolonged downtrend in 2022, Netflix’s stock has broken out of this pattern in 2023.
2. Moving Average Support: The stock has consistently traded above its key moving averages, a bullish signal.
3. Volume Confirmation: Increased trading volume has accompanied price increases, suggesting genuine investor interest.

These technical indicators seem to support Netflix’s bullish case, potentially confirming the positive story many investors believe.

Fundamental Factors Driving Netflix’s Resurgence

1. Subscriber Growth: After losing subscribers in early 2022, Netflix has returned to growth, adding millions of new subscribers in recent quarters.
2. Content Success: Hit shows and movies drive engagement and attract new users.
3. Ad-Supported Tier: Introducing a lower-priced, ad-supported subscription option has opened up new revenue streams and market segments.
4. Crackdown on Password Sharing: Netflix’s efforts to monetize shared accounts could potentially boost subscriber numbers and revenue.
5. Episode lock: Netflix was the first streaming platform to incentivize viewers to keep longer subscriptions by delaying the release of new series; instead of dropping the new season at once like before, they began doling out episode by episode. This made it impossible to binge and unsubscribe, as viewers were forced to wait until the following week to watch the next. Netflix inspired Peacock and Hulu to give teasers and delayed season drops with shows like The Bear or Tell Me Lies.

The Meme Stock Question

While Netflix’s recent performance is based on improving fundamentals, the rapid stock price increase and renewed retail investor interest have made some wonder if it’s becoming a “meme stock.” However, unlike typical meme stocks, Netflix has a long history of profitability and a clear business model.

Investor Takeaways

1. Remember the Chart: Even if you believe in Netflix’s long-term story, consider technical indicators for better entry and exit points.
2. Balance Fundamentals and Technicals: Consider the company’s financial performance and stock price trends in your investment decisions.
3. Be Wary of FOMO: While Netflix’s recent performance is impressive, avoid making impulsive decisions based on fear of missing out.
4. Stay Informed: Monitor Netflix’s subscriber growth, content performance, and new initiatives to gauge the company’s health.

In conclusion, following the herd or believing in a story should not be the basis of any trading decision, especially regarding high-volatility stocks like Netflix. Netflix’s recent surge appears to be based on improving fundamentals and positive technical indicators rather than purely speculative meme stock behavior. However, investors should remain cautious and monitor the company’s performance and stock price trends. As always, conducting thorough research and considering your risk tolerance before making investment decisions is crucial.

For more insights on timing your trades and creating better investment habits, visit Trade Ideas today.

REFERENCES: 

https://www.barchart.com/story/news/28310202/netflix-stock-just-quietly-hit-a-new-all-time-high-5-reasons-it-could-have-further-to-climb#google_vignette