Netflix, Inc. tumbled over 3 percent on Friday post the U.K. voted to exit the European Union. And early trends suggest the stock is all set to kick start the week on a rocky note.
Shares of Netflix are down more than 2 percent in Monday morning trade.
Brexit “Defangs” Netflix, Inc.
Netflix has been on an aggressive overseas expansion spree. Investors fear that following Britain’s decision, those plans may take a hit. According to data compiled by FactSet, Netflix earned 3 percent of its total revenue over the past one year from the U.K., while Europe accounted for close to 17 percent.
Needham senior analyst Laura Martin reckons that the “Brexit” vote has increased both the risk and the uncertainty surrounding the streaming giant’s valuation and growth outlook.
“Netflix is at risk because all of their growth story and capital investment is offshore,” Martin wrote to clients. With NFLX currently trading at 82 times projected 2016 EBITDA, a fall in profit, either on account of a slowdown in demand or currency fluctuations, is likely to hurt the stock.
Netflix, Inc. Stock is a Sell on Rallies
Netflix, Inc. was the top performing S&P 500 name of last year. However, the start of 2016 saw shares sell-off along with the broader markets. Bulls regrouped in February and pushed the stock higher. But the bounce back was short lived as bears regained control in April to push shares below the key level of $100.
Netflix stock is trading close to the $87-mark in early pre-market. As had been discussed earlier in these columns, $85 should provide some support. But given the way fear and uncertainty has gripped the equity world, traders shouldn’t be surprised in the event of a break down.
Emotions are running high on Wall Street; so is the volatility. The markets need some time to cool down and assess the damage. On the downside, $80 looks like the more likely price floor for Netflix right now.
But given the fact that the stock is in an intermediate term down trend, don’t expect any prolonged bounce backs. Netflix is a sell on rallies, and will remain so until it plots a higher peak and a higher trough.
Updated at 05:00 AM ET on Tuesday, 28/06/2016: As had been discussed earlier, $85 was supposed to provide some support to the Netflix slide. That’s exactly what’s happened on Monday after the stock closed marginally above that mark. However, the big question remains whether bulls will be able to hold onto that level? A lot will depend on how the broader markets react on Tuesday.