Top Hot Stocks of the Week: Netflix, Tesla, Walt Disney
By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets
In this review, we are going to talk about the most discussed stock companies of the week.
Netflix (NASDAQ: NFLX)
Founded by Reed Hastings and Mark Randolf in 1997, Netflix is headquartered in Los Gatos, CA. This is an entertainment company focusing on movie and TV show production. In 2016, Netflix released 126 original movies and shows. As per 2018, it had 117.8M subscribers throughout the world, including 54.75M in the US. Netflix has been trading on the NASDAQ as NFLX since 2002.
Initially, Netflix focused on DVD rentals and sales, then limiting it to just rentals in the US. In 2007, it implemented streamed broadcast, and went global by 2010, starting with Canada. In 2016, Reed Hastings suddenly announced streaming was now available in 190 countries. As of now, Netflix still does not work in China, where the internet is regulated by the government, and the countries under the US sanctions.
In Q1, Netflix net profit rose by 56% to $290M, with $185M the quarter before. This was possible majorly because of the subscriber base increase and the subscription fee rise in October 2017. The number of new subscribers came at 7.41M in Q1, which is 50% more than last year and is above the company’s expectations. Overall in Q1, there were 125M subscribers. These positive trends are likely to continue in Q2, with Netflix expecting +6.2M new subscribers.
An average subscriber uses Netflix for around 10 hours per week, and 90% of those users are ready to pay more for their subscriptions, which makes the outlook for the company even more positive. Goldman Sachs, Pivotal Research Group, and Monnes Crespi & Hardt supported Netflix shares rating and raised the target price to $460-$500.
Meanwhile, Netflix CEO announced last week that Jonathan Fridland, PR Executive Director, had been fired after insulting African Americans while talking to the colleagues. This may cause a correction wave for Netflix stock and perhaps will give the investors an opportunity to buy shares at a better price. Jonathan Fridland leaving the company won’t have much influence on the future company’s plans, and large investors do understand it, so any massive sell-off is unlikely; conversely, any correction may provoke large volumes and push the price to its highs.
On W1, the stock is growing significantly, but any negative news or the indices falling may lead to correction to around $340 or $350.
On D1, the price is uptrending, far above the SMA; too much optimism led to a very fast price increase, which may then result in a significant correction. The latter may start as soon as 21st Century Fox and Disney, which are both Netflix competition, agree to a deal, so the current price is not the best point to go long.
Tesla Inc was founded by Marc Tarpenning, Martin Ebenhard, Elon Musk, and Ian Wright in 2003. The company focuses on producing electromobiles and its parts, as well as creating electric energy storing technologies.
On June 16, Elon Musk announced the company had constructed a new assembly line for Model 3 in 3 weeks with minimum investment. However, this assembly line was ‘just a large tent’, as some media said.
This news may be interpreted in various ways. The growing demand for Model 3 makes the company produce more, which leads to building more assembly lines, as the existing ones are not enough; this should be positive for the company and its earnings. On the other hand, an assembly line that looks like a tent is quite on the same page with the record losses of $710M in Q1.
It looks like the company just cannot afford to build a fully functional facility for an assembly line where products that weigh a few tons will be produced. This also requires certain temperature and humidity, which is very hard to provide in a building covered with a tent.
One could remember the Iron Man movie in this light, where Tony Stark managed to build a power suit, get out of the cavern, and even take off, but that was all he could achieve. We can only hope that the cars produced under a ‘tent’ will be able to both start and stop. Even if we’re exaggerating a bit, many say that Tesla is now putting the quantity far ahead of the quality.
Short float is rather high, 30.84%, which means than few investors are confident about the company’s success.
In an attempt to support Tesla, Elon Musk bought shares worth $24M at $434-$345 on June 12 and 13. This is a kind of warning for the bears that they can lose their money after the price goes up again; Musk has issued such ‘warnings’ before, and was quite right: for instance, such a thing happened in 2012, when Musk bought shares and they then skyrocketed by nearly 500%.
On W1, the shares may well correct till the support at $300 or $275, while overall the ascending trend formed in 2013 is still dominant.
On D1, the price is again trying to break out the 200-day SMA; currently, it is above it and may continue rising after correction.
The Walt Disney Company (NYSE: DIS)
The Walt Disney Company was founded back in 1923 by Walter and Roy Disney bros. Its headquarters are in Berbank, CA. This is one of the largest entertainment corporations in the world, owning a huge Hollywood studio, 11 parks of attractions, 2 waterparks, and a few broadcasting channels. News on Walt Disney Company acquiring 21st Century Fox is again on wire, this time with a deal amount of $85.1B.
It all started in 2017, when Walt Disney Company made its first bid for 21st Century Fox acquisition at $52B. Walt Disney still sees its major goal in taking control over streaming services and moving ahead of the competition, including Netflix. To this end, Walt Disney is going to become the major shareholder of Hulu by buying 30% of Huliu shares from FOX 30%, which will totally make 60%.
At that time, only the US Federal Anti Monopoly Service could bar such a deal, and it probably would. Now there is a good chance, as the Service has already allowed Time Warner to buy AT&T for $84.5B.
However, once this issue got nearly resolved, another competitor appeared in the market: it was Comcast that offered $65B to 21st Century Fox. Rupert Murdoch, the FOX owner, was then in good position and just wanted rto wait for a better price. This was not for nothing, finally, as Walt Disney submitted another bid in June, this one at $85.1B, from which $13.8B will be accepted as FOX debt settlement.
The FOX board met on June 20 and announced that Disney bid was better for them, also because it is supposed to be paid not only by cash, unlike Comcast, but with shares, too. However, no official response from FOX has been received yet. The company canceled its board meeting on July 10, when they were supposed to vote for or against Disney offer, and are likely to be waiting now for a counter-offer by Comcast. This way, Disney and Сomcast find it difficult to compete with Netflix and Amazon, as both companies are in need of this deal but nobody knows who will eventually win it.
Still, a new offer was enough for Disney to push their stock price 4% up to reach $109, but FOX being silent upset the investors a bit, with the price then going to $106.
Short float is very low at 2.12%, which means the investors are very reluctant at going short. On D1, the shares broke out the 200-day SMA and managed to stay above, which could mean an uptrend in forming. Once the acquisition is a deal, this trend will gain momentum.
Meanwhile, on W1 one can notice a long term ascending trend correction. This trend started forming back in 2011, and right now the price is at the support near the 200-day moving average.The closest resistance levels are at $115 and $120.
Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.