This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
Otherwise, enjoy the column!
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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN NETFLIX AND APPLE
It would seem the current scenario in the stock market is improving rapidly. And the uncertainty I had yesterday is easing. I think the S&P 500 is now well on its way to 2,690 and potentially to 2,800.
S&P 500 (SPY)
The S&P 500 jumped today at roughly 2:30 when a perfectly placed and perfectly timed headline crossed that the US was considering lifting tariffs on China. I mean it was perfectly timed, likely almost purposely placed. As if Sec. Mnuchin and Pres. Trump are reading the charts and know where support and resistance levels are, placed. Maybe they are reading my commentary, ok probably not, but look at the chart below.
The market was dead all day, just struggling to get its bearing, struggling to rise above 2,630, then the headline. Look at how the index punches through resistance at 2,630. It even retested the breakout and managed to finish the day higher at 2,635.
The Russell 2000 also broke out and the next level to watch for here is 1,492.
The housing index looks like it getting ready to breakout too, with the bullish flag forming.
The NASDAQ is on the cusp of a break out too now.
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Netflix threw a nasty splitter that the market just completely whiffed at. Without warning they just decided to they were no longer going to report total net addition, but only total paid additions. When the company said it added 8.9 million new subscribers, it seemed as if the company missed its guidance by about 500,000. But no, the 8.9 million was the total paying subscribers added, and their guidance was for 7.6 million. So what looked like a miss was a beat, a giant 1.2 million subscriber beat.
It isn’t entirely clear to me at the moment how the trial subscribers in the appendix equate to the old total membership. I shall have to see what the 10-Q says.
So why is the stock down? The company reported revenue of $4.187 billion versus estimates of $4.207 billion. Additionally, the company is guiding first quarter revenue to $4.494 billion versus estimates of $4.612 billion. Also, Netflix said free cash flow next year is expected to be around the same level as this year, at -$3 billion. It likely means they will need to do another debt offering.
There is one problem that I realized following these results which could have a negative drag in the future. As the company continues to add more international subscribers in countries that pay less per month, it will drag the overall ARPU for the business down. It is likely why the company is now raising prices in the US. With all the additions this quarter in the international segment ARPU in the fourth quarter fell to $10.02 versus $10.22 in the third quarter, but is still up from $9.90 in the fourth quarter of 2017.
The stock is trading down to around $337 in the after-hours filling the gap that was created following Tuesday’s significant increase. I do think that the stock trends higher in the weeks to come.
Nothing is disappointing about this quarter.
Apple managed to rise above $155, and I think that may be a big deal. It was just yesterday I was concerned that Apple could not increase above that price. Here we are a day later and the stock trading above $155. That is just how it goes sometimes. The next level to watch for is $160.
That’s it. Sorry I got thrown off schedule. Sometimes your life is not your own.
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