After the password-sharing crackdown, Netflix saw its daily US sign-ups jump in the first few days. With that in mind, on Wednesday, when the streaming giant announces its earnings results for the second quarter, investors may pay special attention to the number of subscribers gained. Will the results be enough to extend the uptrend in Netflix’s stock?

EPS set to decline, but revenue expected to increase

On July 19, Netflix is scheduled to announce its earnings reports for Q2 2023, with expectations pointing to earnings-per-share (EPS) of $2.84, down 11.37% from the same reporting period of 2022. Revenue, however, is expected to have increased 3.77% to $8.27bn.

Although deviations of these metrics from their forecast will play a significant role in how the price will respond, investors may pay more attention this time to the number of new subscribers and the revenue part deriving from advertisements.

Spotlight to fall on new subscribers

In an attempt to maximize its revenue opportunities, Netflix has decided to limit the borrowing of account credentials to users in one household only. Existing customers are still able to add members outside of their homes for an additional fee, which in the US is $8 per month. What’s more, back in November, the firm introduced an advertising-tier account which is cheaper than its basic plan, which allows only one stream and downloads to only one device.

Perhaps the two decisions were linked, as the firm may have been preparing the ground for viewers who were about to be excluded from sharing accounts to stay with the service by choosing a cheaper plan. Indeed, although there were concerns initially about those viewers not translating into new accounts and existing users abandoning the service, daily US sign-ups jumped in the first few days after the account-sharing restrictions came into effect on May 23.

Therefore, should the number of subscriber additions exceed the forecast of around 1.7mn for Q2 and the estimate for the full year exceeds the prior 15.4mn, Netflix’s stock may extend the uptrend started back in May, following the post-covid plunge. The streaming service saw significant gains during 2020 and 2021, as due to the pandemic-related lockdowns, viewing and subscriptions skyrocketed. Nonetheless, it was all downhill thereafter as consumers started gravitating towards out-of-home activities and entertainment.

Netflix may still be attractive

From a valuation perspective, Netflix now appears to be the fourth most expensive stock if we blend it with the “Magnificent 7” group, but its 12-month forward price-to-earnings ratio has been in a downtrend since 2015, and well below its 5-year moving average. On top of that, should the firm continue to project accelerating growth of free cash flows for the years ahead and the market remains convinced that the Fed is likely to proceed with a series of rate cuts next year, the present value of the firm may be destined to further rise.

With all that in mind, investors may want to increase their exposure in the streaming giant’s stock, even if it has already experienced strong gains since October, when the latest rally in Wall Street began. Among the aforementioned group of big-tech firms, Netflix has been the third best performing since then, behind the skyrocketing Nvidia and Meta Platforms.

Broader uptrend remains intact

From a technical-analysis perspective, Netflix has been in uptrend mode since May 2022, with the best trendline capturing the trend and its gradient drawn from the low of July 13, 2022. On July 7, the stock tested the $450 zone, which is the peak of June 15 and the highest point since February 2022, before consolidating slightly below it.

Therefore, an encouraging earnings report on Wednesday may result in a break above that barrier, a move that may pave the way for advances towards the psychological zone of $500 or the $505 barrier, which offered decent support during the summer of 2021.

The move that could trigger a meaningful downside correction may be a dip below the $410 barrier, near the low of June 26. Such a move may signal the completion of a short-term double top formation and allow declines towards the $376 or $350 areas.