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Netflix Misses Estimates But Growth Story Remains, Plus Banks Rally

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MICHAEL KRAMER AND CLIENTS OF MOTT CAPITAL OWN SHARES OF NFLX

MICHAEL OWNS XLF PUTS

Stocks had a back and forth day, with the S&P 500 finishing the day down about 15 bps, nothing major. Despite the down day, we got a little bit of bullish confirmation potentially. The bears tested support in the S&P 500 at 2,794  two times today, and it held a bullish indication.

Banks

The banks were the clear-cut winners today, with the XLF rising about 1.75 percent, a solid showing. The question, I am asking is if it will last. To this point, I have no evidence to suggest that the rally will continue.

The big test comes for the XLF at $27.60, which would be a break out above a multi-month downtrend, and even then we need to see a two day follow through.

Additionally, JP Morgan and Bank of America rallied sharply today. But both also came up to multi-month downtrends.  So still, one will want to see the JP Morgan rise above resistance at $111, and even then there needs to be a solid day or so of follow through.

Bank of America also is on the doorsteps of a break out as well.

So will the banks had a sharp rally? Once again it is not a change of a trend yet. Perhaps it shall be, and to be honest, it would be a welcome sign to see banks rise, because they would be a big lift from the entire market.

But for now until proven otherwise, the trend still tells us the banks are likely to struggle.

Netflix

Well, I feel like a dope, with Netflix falling short of subscriber estimates. I guess even the best laid out plans and research can go wrong. Perhaps the World Cup had something to do with it? Maybe. It doesn’t matter what the reason was. I do not think this is the end of the world for them.  When you look at from a top-down viewpoint, we are talking about the subscriber base at 130 million vs. 131 million, and to some extent, it is a rounding error.

Forward guidance for revenue fell short of estimates, with analysts looking for $4.1 billion, and the company guiding at $3.9 billion. EPS guidance also came down a bit to $0.68 versus estimates of $0.71.  I have a feeling Netflix went to the extreme the other way for the third quarter and got too conservative. Only time will tell.

Was there something wrong with these numbers at first blush, not that I can tell. The only thing wrong is that expectations got way to high. Part of that is the company’s fault by guiding the street to high last quarter.  I can’t say I wasn’t swept up in the excitement either.

Right now shares are trading down to roughly $345, from a close at $400.  The stock is now up only 81 percent on the year.

The one thing I did notice is that ARPU this past quarter did increase to $9.98, up from $9.86 last quarter.  The growth trends for subscriber base also remains on target, and little has changed.

So yes the stock is down, and it may even fall further to perhaps support $335, but the growth story at this point still very much intact, and I don’t think this latest quarter means anything but that Netflix, like all of us, isn’t always going to be perfect.

That is all for today!.

-Mike

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