Over the past year, Netflix (NASDAQ:NFLX) shares are up a respectable 12%. However, given the outperformance of other major NASDAQ names, 12% feels more akin to a benchmark return rather than any real outperformance. After touching $700 in Q4, shares now trade back close to $600. Here’s why we think that a return to $700 could be on the cards next year.
Positive sentiment returning
The first reason speaks more to the sell-off in December. It saw a double digit drawdown as markets were rattled with the spread of Omicron, tensions with Russia, lingering concerns around a China slowdown and other factors. In times of uncertainty, it’s the high growth stocks that typically get hit the hardest. This was what we saw with Netlifx shares.
Yet this slump is actually one reason to support a rebound in 2022. This fall is due to external factors, not Netflix fundamentals. So if we do see Omicron fade away into the spring, along with Russia stepping down from Ukraine etc etc, Netflix naturally should see higher volumes buying. Just as high growth stocks were shunned in December, they should be welcomed during better times.
Clearly, this reason depends on your outlook for 2022. But if you are cautiously optimistic like ourselves, Netflix shares should benefit.
Quality original content
The second reason focuses on the push Netflix are making with regards to original content. In the latest quarterly results, the business commented that “we expect… our strongest Q4 content offering yet, which shows up as bigger content expense and lower operating margins sequentially.”
We’ve been impressed with hits this year, including Squid Game, The Queen’s Gambit, Money Heist and many others. We feel it’s going to become a key differentiator from other streaming services. Traditional content will continue to become a race to the bottom, but original content is going to be the main attraction. In this regard, we think that Netflix is leading the pack.
Key support region ahead
Finally, we think Netflix shares should rally next year due to the technical outlook. We regularly feature stocks like Netflix in our popular TechTalk series.
When we consider the Netflix share price, the retracement back from $700 seems to be nearing completion. We note the support region of $560-$590, which was tested on the way up six times in 2021 before breaking higher on the seventh. The share price did trade back down to sub $590 in the middle of December, with it holding steady just above $600 as we go to year end.
With the region now acting as support on the downside, we think this creates a good technical entry by layering in via orders in several places within this support region. A break and hold below $560 would change our view.
Overall, we do acknowledge that the sector that Netflix is in is extremely competitive. However, given the above reasons, we do feel that Netflix shares have room to move higher in 2022.
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