Netflix [NASDAQ: NFLX] is one of the biggest losers in pre-market trading this morning. At the time of writing, the stock was down by 10.99% to trade at $322.62. This followed a shock announcement that the company customer numbers in the U.S had dropped, and that its international business was slowing down.
This announcement has caused panic, given that competition is already on the rise. For instance, Disney will be launching its streaming service in November, and is withdrawing its content from Netflix. This, and the presence of other strong competitors such as Amazon are likely to put more pressure on Netflix going forward.
These weakened fundamentals are reflecting in the stock’s price action pre-market. At yesterday’s close, Netflix was trading at a key support level, on the 100-day moving average around $362.44. Though momentum was slightly bearish, this support was holding pretty well in the day. However, after news of declining user numbers hit the markets, Netflix has broken this support by a huge margin. This is a strong indicator that it could trade in bearish territory in the short-term. This bearish sentiment is confirmed by the fact that, Netflix has broken this support with high volume.
However, with such a huge sell-off, there is the probability that the worst could already be priced in by the time the markets open. In such a case, Netflix could trade in a range, with the potential for a minor recovery in the day. Such a scenario could be supported by the fact that Netflix is investing heavily in content. For instance, popular shows such as “Orange is the New Black” are making a comeback this quarter. The company has already spent $3.6 billion on content production and marketing. Being one of the most recognized streaming companies in the world, these are factors that could see it hold its value, even as competition grows.