By Raghu Gullapalli
Netflix (NASDAQ:NFLX) the pioneer of the DVD by mail business and slayer of once mighty Blockbuster Video, has been on an absolute tear the past two years. Streaking up from the $40 value it consolidated under for nearly three years, the stock has since risen almost 700% and is up over 30% year to date.
As the company transitions from the DVD by mail business to providing streaming video, it has seen it growth skyrocket. No doubt aided by the vast array of partner products the video can be streamed through. Netflix has been reallocating money saved from the expense of free mailing to building a much larger catalog of movies and television shows for its very supportive user base.
But growth of this magnitude has painted on bull’s-eye on Netflix’s back. With the transition to the digital landscape, it has opened itself to the vulnerability of competing against some new very well funded competition. Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) being among the prominent.
The stock seemed to peak just over the $250 level and struggled for several months to make new highs, even forming a short-term head and shoulders pattern. Amid the pattern development came news of the departure of the CFO and the start of Amazon’s new free streaming service for its premier members. Then came a potential knife to the jugular, Google’s deal to stream content from Sony Pictures, Warner Bros., NBC Universal, Lions gate Films, Starz, The Weinstein Co., Magnolia Pictures and many other independent studios. Fortunately for those who were bullish, it failed to break the neckline support at the $224 price level.
Recently came the news that Netflix will be working with Facebook, instead of Facebook taking on Netflix. An analyst at Pacific Crest Securities, Andy Hargreaves said, "Facebook integration could boost global subscriber growth. We believe Netflix is working with Facebook to tightly integrate Netflix into Facebook's platform. This could help increase time spent in Facebook and drive incremental Netflix subscribers domestically and in new international markets. We believe that, on top of its existing momentum, the company is working with Facebook to launch deeper integration of Netflix into the Facebook platform. The first stages of these efforts are likely to launch within the next few months, and we believe they could drive incremental subscriber growth domestically while helping to accelerate Netflix's international expansion."
In a recent piece by The New York Times, Mr. Zuckerberg said. “Music, TV, news, books — those types of things I think people just naturally do with their friends. I hope we can play a part in enabling those new companies to get built, and companies that are out there producing this great content to become more social.” In the same article, Mr. Zuckerberg mentioned Netflix as one of the companies that had been in talks with Facebook.
Since that article came out, Netflix has popped above the $254 resistance level and is now leaving that level far behind and may seek out the $280 price target set by Oppenheimer in late April.
Equities that take the elevator up, often take it down. But you don’t have to give back your profits. Stay Protected. We have the short-term stop at $246.32 and the long-term stop at $228.00
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.