Netflix’s US$45 billion rally sets up earnings showdown next week

SAN FRANCISCO: An explosive rally in shares of Netflix Inc. is stoking interest in the streaming company’s financial results due next week, setting up the potential for volatile trading as bullish and bearish investors dig in.

Netflix gained 4% on Friday after two analysts boosted their ratings and predicted the company would report robust subscriber additions fueled by like the Sandra Bullock film “Bird Box” when it releases fourth-quarter results on Jan. 17. The gain padded an eye-popping post-Christmas rally that created US$45 billion in value and prompted a public rebuke from short seller Citron Research, which predicts the stock will drop 11%.

“Netflix, like most other things over the last month, is just trading on fear and greed,” said Michael Antonelli, an equity sales trader at Robert W. Baird & Co. “In the absence of a meaningful data point, these things can sell off too much and they can rally too much.”

With its rapid growth and big spending on movies and TV shows, Netflix is one of the more polarizing companies in the world of internet and technology investing. Despite outperforming all of the large-cap tech stocks last year, the Los Gatos, California-based company has a smaller share of buy ratings on Wall Street than Inc., Alphabet Inc. and scandal-plagued Facebook Inc., according to Bloomberg data.

Bullish investors see a company that is expected to post 25% revenue growth in 2019, while bears scoff at the company’s low profitability and triple digit price-to-earnings ratio. Netflix said on its call last quarter the company would burn through more than $3 billion in cash for all of 2018.

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“There is a legitimate argument that they spend like drunken sailors,” said Ross Gerber, president and chief executive officer of Gerber Kawasaki Wealth & Investment Management, which owns the shares. “But the bottom line is if you think over the next year what is the best opportunity for growth — Netflix, Tesla, Amazon — these are the companies that have the best growth.”

The options market is implying an 11% move in the shares of Netflix after the earnings report, according to Bloomberg data. Despite the recent rally, the stock is still 19% below the July 9 closing high of US$418.97.

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