Oversold Netflix is recovering from post-earnings dip but faces key hurdle

Netflix, Inc. (NASDAQ:NFLX) was expected to post a strong fourth quarter of 2021 earnings, but investors remained cautious over subscription additions which had exponential growth during the pandemic.

When the company posted a $607 million net income in the fourth quarter of 2021, higher than $542 million in the prior year, the stock fell more than 20%. Amid the strong earnings, investors chose to look elsewhere, focusing on the subscriber additions of 8.3 million, below estimates of $8.5 million in the quarter. Investors also digested the company's own guidance, which showed only 2.5 million additional subscribers in the first quarter of 2022.

The fall in Netflix’s subscribers does not come as a surprise as boosts from the pandemic continue to wane. As a high-growth tech stock, investors are also cautious, with an expected rate cut and stimulus winding by the Federal Reserve prompting rotation into value stocks. But is the recent dip in Netflix a buying opportunity?

Netflix technical analysis - $387 resistance could keep buyers out

Looking at the weekly chart, Netflix is rebounding after touching a low of $352 in the post-earnings dip. The jump in the stock happened after legendary investor Bill Ackman revealed that he had bought 3.1 million shares saying that Netflix still carries an attractive valuation.

The company's management has also expressed confidence in the growth potential, with Co-CEO Reed Hastings also adding $20 million worth of shares in the company. 

Looking at the RSI, one can speculate the reason for the stock buys, with the RSI of 26 pointing to oversold conditions. However, the stock rebound has met resistance at $387, while moving averages could cause it to remain subdued for a longer time.

Concluding thoughts

Netflix’s subscription-based business model remains viable. The stock could be suffering from low subscriber volume and policy tightening, and these factors could force a bearish sentiment in the short and medium term.

However, the stock remains viable in the long term. If the current bullish move continues and Netflix clears the resistance at $387, it could head higher, with the next level at $480. We still expect some longer-lasting consolidations as the stock recovers from the weak post-earnings guidance and buying remains muted below $387.