$NFLX Q3 Earnings Cheat Sheet

by Enis October 15, 2014 3:00 pm • Commentary

Event:  NFLX reports its Q3 earnings today after the close.  The options market is implying about a 7.25% one day move, which is below both the 4 qtr avg of about 9.5% and the 8 qtr avg of about 15%.

Sentiment:  Wall Street analysts are fairly neutral on the stock with 20 Buys, 20 Holds and 7 Sells, with an average 12 month price target of around $459.  The stock is up 18.5% year-to-date, even with the recent selloff in the shares.  Short interest has increased in the past 6 months to 10% of the float, but that is still well below the level of 2 years ago:

NFLX short interest, courtesy of Bloomberg
NFLX short interest, courtesy of Bloomberg

Options Open Interest:  Total open interest is slightly skewed towards puts over calls by a ratio of 1.1 to 1. One month average volumes have been evenly split between puts and calls.  The weekly 440 puts have the most open interest of any line, with over 2800 in total interest.   

Price Action / Technicals:  NFLX has actually held up very well in the past few months despite the weakness in the market.  The stock is still above its 200 day moving average, and around the same spot as the last time the stock reported:

NFLX daily chart, 50 day ma in pink, 200 day ma in yellow, courtesy of Bloomberg
NFLX daily chart, 50 day ma in pink, 200 day ma in yellow, courtesy of Bloomberg

The $400 level is the obvious spot to watch on the downside, while the stock’s 50 day ma is $460 on the upside, and the all-time high is near $490.

Volatility:  NFLX is one of the few stocks that still has implied volatility near the lows of the past 2 years:

NFLX 30 day implied volatility, courtesy of Bloomberg
NFLX 30 day implied volatility, courtesy of Bloomberg

The market’s nervousness has not hit NFLX so far, and it will be interesting to see how far implied volatility falls tomorrow after the earnings report.

On a side note, today’s announcement from Time Warner that they will be launching a standalone streaming HBO service in 2015 should catch a bit of attention on the conference call, and I expect questions regarding competition to dominate a good bit of the QnA.