Even with the Warner Bros. Discovery (WBD) acquisition out of its hair — leaving Paramount Skydance (PSKY) to hold the bag — Netflix, Inc. (NFLX) is struggling this year.
Shares of the streaming entertainment giant are languishing and have been faltering over the past several months despite markets applauding the decision to not pursue Warner Bros. So with Netflix stepping into the earnings confessional Thursday after the close of U.S. markets, it’s safe to say that this will be a widely watched report.
It could also spell opportunity with the Direxion Daily NFLX Bull 2X Shares (NFXL ), or its bearish relative, the Direxion Daily NFLX Bear 1X Shares (NFXS ). NFLX attempts to deliver 200% of the daily performance of this communication services stock, while the bearish NFXS seeks returns that correspond with the stock’s daily inverse performance. Analysts expect Netflix to post per-share earnings of 79 cents, up from 72 cents in the same period last year.
One of These Direxion ETFs Could Stream Higher
Either NFXL or NFXS could be in the spotlight following the Netflix earnings update, especially if it includes the streaming giant’s usual commentary around customer subscriptions.
“Netflix’s streaming dominance is under greater threat than when it was establishing its position and charging relatively low prices,” noted Morningstar analyst Matthew Dolgin. “With many subscription streaming platforms offering popular content, we don’t believe consumers will have the financial willingness or ability to subscribe to all of them, meaning Netflix will need to continue offering a robust lineup of attractive programming to maintain its position. This will require significant investment and careful consideration of pricing changes. Despite our view that Netflix will remain at the top, it will have to compete more than it has historically.”
The Consumer Sentiment Coin Toss
Netflix has steadily raised prices in recent years. This strategy is potentially testing the limits of consumers’ willingness to spend on in-home entertainment, particularly against the backdrop of rising prices for essential household items. If Thursday’s report hints at subscriber attrition or resistance to these price hikes, the inverse NFXS could step into the spotlight.
Conversely, the bullish and leveraged NFXS could have its moment in the sun if Netflix shows that customers are proving loyal. Progress on new content is also key. Crucially, Netflix must achieve this without relying on splashy, expensive acquisitions.
“We still expect an impressive growth trajectory,” added Dolgin. “Assuming no major misfires that lead to a lack of attractive programming over an extended period, we expect Netflix’s subscriber base to be sticky, and we think the cash it generates will allow it to produce many new series and movies each year, giving ample opportunities for customers to find something they like. We also see further opportunities for penetration in international markets.”
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