With Ad Business Off To A Slow Start, What’s Next For Netflix Stock?

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NFLX: Netflix logo
NFLX
Netflix

Netflix stock (NASDAQ:NFLX) has declined by about 9% over the last week and remains down by about 5% over the past month (21 trading days) underperforming the broader markets. The sell-off comes amid a report that the company’s advertising program has been unable to meet viewership targets in some instances. Digiday – an online trade magazine – reported that the streaming giant was returning advertisers’ money for ads that had not yet run, indicating that there were instances where Netflix only delivered about 80% of the expected audience to advertisers. Investors were likely disappointed with the report, as they have been pinning their hopes on the ad-supported service to bolster growth, as subscriber additions cool in the U.S.  In fact, Netflix stock is up by over 30% since October when the company first outlined the details of its ad-supported plans. However, we think that it is still too early to judge the performance of the $ 6.99-a-month service given that it launched just over a month ago. Moreover,  Netflix is also still a relative outsider to the advertising market and it could take time for the company to tweak the product.

Now that Netflix stock has seen a decline of about 5% over the last month, will it continue its downward trajectory in the near term, or is a rebound imminent? Going by historical performance, there is a roughly 56% chance of a rise in Netflix stock over the next month. Out of 584 instances in the last 10 years when Netflix stock saw a trailing 21-day drop of 5% or more, 329 of those instances resulted in NFLX stock rising over the subsequent one-month period (21 trading days). This historical pattern reflects 329 out of 584, or about 56% chance of rise in Netflix stock over the next month. See our analysis on  Netflix Stock Chance of Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of Rise’ using the last ten years data

  • After moving 9% or more over five days, the stock rose in the next five days on 67% of the occasions.
  • After moving 9% or more over ten days, the stock rose in the next ten days on 52% of the occasions
  • After moving 5% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 56% of the occasions.
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This pattern suggests that there it is moderately likely that Netflix stock should see gains in the near term.

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 Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 NFLX Return -5% -52% 135%
 S&P 500 Return -6% -19% 72%
 Trefis Multi-Strategy Portfolio -5% -22% 215%

[1] Month-to-date and year-to-date as of 12/18/2022
[2] Cumulative total returns since the end of 2016

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