TradingKey - Netflix closes trading on Friday at $81.72, just $0.01 from our chart price. Fundamentally, the picture is positive.The company reported strong double digit growth in Q2 revenue and a near doubling in advertising commitments in the USA. More impressively, more than 60% of new global subscribers signed up for the company’s ad supported streaming plan in markets where it is available. The companies' growth will likely be slower in Q3, and the current macro environment poses some risk for tech companies trading on high multiples.
Q2 Growth Remains Healthy, but Q3 Guidance Is the Main Constraint
The company's last official financial baseline is provided in the Q2 report published on July 16. Revenue reached $12.56 billion, or about 13%, higher than the year prior, while operating income reached $4.19 billion, and operating margin was at about 33%. The CEO was very positive about the company's performance even with the challenging market conditions for streaming. So, it's positive that the company is still seeing healthy growth.
However, the guidance for Q3 was less positive. The company expects revenue for the quarter to be about $12.86 billion, or about 12% growth over the year prior, and management issued an earnings guidance that fell below Wall Street expectations. So, growth is normalizing, and the company needs advertising, live programming, and content to fill its growth needs internationally.
Advertising Is the Strongest August Catalyst
On August 10, Netflix stated that its 2026 US upfront advertising commitments nearly doubled, meeting management's expectations. The demand came from across the board, including user interest in series, films, and live programming. This gives Netflix numerous avenues to increase revenue per member with less reliance on increasing subscription prices.
International numbers are also significant. During the August 21 Mexico upfront, Netflix stated that more than 60% of the new global subscribers choose the ad-supported plan in the markets that support that plan. In addition, some ad formats built with AI were announced and will be available in 2027, along with other ad formats, new ad measurement tools, and Pause Ads that will be interactive. Engagement with advertising will continue to grow and likely lead to higher revenue from advertising in the next several years.
Live Sports and Global Content Expand the Monetization Engine
Some of Netflix's live content allows advertising to become more valuable. The 2027 Concacaf Gold Cup and Nations League Finals will be streamed in Mexico on Netflix, and also join other live sports such as the NFL, WWE, MLB events, and combat sports.
Netflix also is broadening international live sports and entertainment content. In August, new Southern Indian and more UK content was commissioned. This adds to an international content model that has produced several global hits in multiple languages. This content model is one of Netflix's strongest competitive differentiators against US-based media.
Ackman Position Adds Sentiment Support, Not a Fundamental Change
On August 13, Pershing Square announced a new position in Netflix, the latest significant shift in Pershing Square's portfolio. With this investment, Netflix’s outlook remains the same. However, this purchase does signal a sentiment change. Ackman has a preference for businesses with pricing power and “moats,” as evidenced by companies with subscription-based and recurring revenue streams. The larger concern remains depth and breadth of engagement. While digital platforms are spending millions in the race to capture users' time and attention, Netflix must provide hours of content to support subscriptions and advertising, as well as provide a bed for its future economic goals of live content.
Macro Conditions Are the Main Near-Term External Risk
In terms of short-term external factors, August 31 will be more about macro than it will be about individual companies. Brent Crude is above $90 a barrel, Treasuries are higher, and there is more of an expectation for the Fed to raise rates in September after the hawkish comments from the new Fed Chair Kevin Warsh. Premium valuations are impacted by a higher discounting rate, and hence the fundamental company value suffers.
Under these circumstances, Netflix is impacted because the stock is highly correlated to long term cash flow. If there is an expansion on adverse terms resulting from deteriorating operating margins, valuations will probably decline.
Netflix Technical Analysis: $82.53 Is the Breakout Trigger
The 2-hour chart (included) showed NFLX at $81.73, with the latest close on Friday at $81.72. Price is still within the recovery channel from the July low at $66. Premarket trading on August 31 was $80.30, so normal trading will need to take place to determine the engagement.
Netflix Stock Price Chart - Source: Tradingview
Immediate resistance is at $82.53. A break above that resistance zone for 2 hours would establish a new higher high with new resistance at $85.58 and $88.46, $91.28 as the subsequently higher targets. RSI at 59 is neutral, but is showing momentum without reaching an overbought level.
$79.00 is the first key support that also sits near the lower boundary of the rising channel. The moving average is a second key support level that is closer to $77.60. Breaking below that level would change the overall structure from higher lows to lower lows and would expose $75.54.
Key Levels
· Last completed deal: $81.72
· Premarket estimate: Approx. $80.30
· Immediate support: $79.00
· Moving average support: $77.60
· Breakout resistance: $82.53
· Potential upside: $85.58, $88.46 and $91.28
· RSI: Approx. 59, rising but not overbought
Why is Netflix advertising important for NFLX stock?
Netflix has a new possibility to gain more money with advertising after subscription income. The ad-supported tier has had a lot of demand which shows that the ad-supported tier isn't going to be a test for very long.
What level would confirm a stronger Netflix breakout?
The main resistance level is at $82.53. Closing above this resistance or breakout level for two hours would result in a strong bullish structure and place the next resistance levels at $85.58 and $88.46.
Bottom Line
As Netflix enters September, they have improved and strengthened the other side of their revenue with advertising and weighted more heavily on their growth with possible future additions. Some of their other potential profits come from real-time programming and a strong concentration of high quality original content. With added competition for the audience's time, a change of a less favorable rate environment, and continued slow growth, the revenue for Netflix will more than likely be negatively impacted. NFLX is bullish at $79, but a break of $82.53 is necessary for a bullish case to take shape and push for $85.58 and $88.46.
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