The First in FAANG — Netflix Earnings
Netflix reports earnings today after the bell, and the announcement today will be critical for a variety of reasons.
Let me take the time to explain why (p.s. read this before market close, if you can)…
First of all, it’s the first to report in the FAANG group: Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL).
Fun fact, I’ve argued for some time now that Microsoft (MSFT) and Adobe (ADBE) should be included in this list, but I suppose I’ll need to create my own acronym and make it famous 🙂
These companies (regardless of what they report) will move the market in a significant way. Traders need to be especially wary of their risk over the course of the next two weeks because of the volatility these companies will cause.
Netflix, as it goes first, is going to set the tone for anticipation for the others. With a market that is flirting with new, all-time highs and looking for a catalyst to touch them, a breakout move here could be exactly what we need.
Trading FAANG Earnings
As far as their earnings reports go, I’m betting on all of them — to the upside, however it depends where they’re trading directly before the report. Often times, the FAANG stocks will rally ferociously into the report — making it difficult to trade short-term, bullish options trades, because the anticipation is too great, and the report can’t uphold the prior anticipation.
With NFLX, because of the hit it took last week on the Disney + news, we’re in a great spot, technically, to place some bullish put credit spreads, call butterflies, or any number of bullish trades.
The one thing I won’t do, however, is buy long calls before a report.
This is the best way for IV crush and theta decay to get you. I’ll be trading it today, at the close in the trading room. (If you want to join in, pick up a $7 trial here real quick.)
Why Bullish NFLX?
I’m bullish NFLX for a couple reasons. On a daily chart, you can see the strong technical pattern. It’s been in a slow grind higher/consolidation almost since its last report on January 17th, 2019.
As far as the report goes, NFLX numbers are all about continued subscriber growth. Of course, there’s new competition from Disney and Apple, but in reality, nobody’s going to cancel NFLX for Disney +.
Yes, I see NFLX subscribers adding a subscription to Disney as well, but NFLX isn’t going anywhere. NFLX subscribers are for the most part, hooked, so much so that it’s become a huge part of popular culture. NFLX themselves have caused cable TV providers to scramble, and now have caused the brewing competition across other companies.
After all, it was NFLX that first introduced media streaming, in a way that really caught on — and HBO Now, Amazon Prime, Disney +, and now Apple are all behind in the game. While they’re competitors, in reality, the experience you get on NFLX can’t be felt in the same manner on any of the others.
The concept that NFLX runs on, and the investment in original content that NFLX has made, is paying off. Furthermore, the subscription model is what seals the deal. Any negative reaction to NFLX earnings, if it happens, for me is just another buying opportunity.
Now that we’ve discussed the news-aspect, let’s take a look at the technicals.
NFLX — Daily Chart
As you can see on the daily chart, NFLX has held above the neatly stacked moving averages, and maintained price above the 200 SMA on the Disney+ news last week. The length of the squeeze tells me that we’ll see a breakout of consolidation, likely on the earnings report today after the close.
Earnings Analysis Comparison
On a comparison of the previous earnings reports, NFLX has a history of moving higher. I like to analyze the past 8 quarters for the most up-to-date data.
NFLX Daily Chart — Earnings Analysis Grid
On this chart you can see that overall, the reaction to NFLX earnings has largely been positive, while the downwards moves have been nominal (with the exception of one quarter). That tells me that focusing on NFLX to the long side is the direction I want to go.
Of course, with any earnings trade, you have to understand it’s a binary event. No one ‘knows’ what the report will show. Earnings trades are all about probabilities, coupled with fundamentals and technical strength.
With NFLX, I believe I have the odds in my favor. What do you think?
Danielle,
Great input on NFLX and earnings. Will be in the room listening to you and watching closely.
Excellent summary. I like your earnings grid. As a Phoenix subscriber (purchased your course about a month ago), can I get a copy of your earnings grid setup?
Awesome insight. Thank you. Great coaching.
Thanks George, I hope you have a great evening! I appreciate your comment.
-Danielle
I also like the Earnings Analysis Grid. I have purchased the Phoenix as well. Is it possible to get a copy of the earnings grid setup to incorporate into TOS??