NFLX: Bearish Signal – Time to Consider Put Options?

Netflix is a leading entertainment service providing TV series, films, and games to approximately 302 million paid memberships in over 190 countries. The company's core business involves streaming content to its members, who can access it 'anytime, anywhere' on various devices. Netflix primarily targets consumers seeking entertainment video, competing with a broad range of options including linear television, other streaming services, video games, and social media. Netflix's business strategy centers on global growth while maintaining its operating margin target. This is achieved by continuously improving the member experience through 'compelling content', offering diverse pricing plans including ad-supported options, enhancing user interface, and driving conversation around its offerings to attract and retain members.

The primary news item is Netflix potentially licensing video podcasts from iHeartMedia. This is a marginally positive development, suggesting Netflix is exploring further content diversification. However, the impact on NFLX's stock price over the next 1-2 weeks is likely to be limited. It's not a game-changing deal like an acquisition or a major earnings surprise. The market's reaction will likely be muted, as video podcasts are still a relatively nascent area for Netflix. While it signals a willingness to experiment and potentially attract new audiences, the financial implications in the short term are probably negligible. Given the absence of any other significant news (macro or company-specific), a slight upward bias is warranted, but a neutral stance remains the most reasonable expectation. Options traders should consider this a minor, positive catalyst, not a major directional driver.

NFLX's technical outlook is bearish. The stock has experienced a significant downtrend over the past 90 days, falling from approximately $1339.13 to $1092.73. The price is below its 50-day SMA (1193.26) and 200-day SMA (1123.03), confirming the downtrend. The 21-day EMA at 1148.05 also suggests continued downward pressure. Momentum indicators reinforce this bearish sentiment. The MACD is negative (-28.96) and trending further below its signal line (-22.16), indicating accelerating downward momentum. The RSI is low at 37.55, suggesting oversold conditions, but not enough to counteract the strong downtrend. The Stochastic Oscillator (STOCHk) is at 11.66, also indicating oversold conditions, but with STOCHd at 9.15, there's no immediate sign of a reversal. The ADX at 23.31 suggests the downtrend has strength. The Bollinger Bands show the price is near the lower band (1047.08), further suggesting oversold conditions, but also potential for continued downward movement towards the lower band. Overall, the technical indicators point to a continuation of the bearish trend over the next 1-3 months, with potential for minor pullbacks, but limited upside.

Netflix's Q3 2025 MD&A reveals a solid performance, characterized by revenue growth and improved operating cash flow. Total 'Revenues' for the three months ended September 30, 2025, increased by 17% to $11,510.3 million, compared to $9,824.7 million in the prior year. This growth was attributed to increased memberships, price adjustments, and higher advertising revenue. However, the 'Operating margin' decreased slightly by 1.4% to 28.2%. The 'Net cash provided by operating activities' for the nine months ended September 30, 2025, increased significantly by $2,213.161 million to $8,037.631 million, driven by higher net income and non-cash adjustments. Netflix continues to invest heavily in content, with 'content obligations' totaling $20,940.9 million as of September 30, 2025, with $11,267.688 million due within the next 12 months. The company also actively repurchased shares, spending $7.0 billion on 6,765,397 shares during the nine-month period, with $10.1 billion remaining authorized for future repurchases. Management anticipates that cash flows from operations, available funds, and access to financing will be sufficient to meet cash needs for the next twelve months and beyond.

The Netflix Q2 2025 earnings call projects a moderately bullish outlook. The company increased its full year revenue guidance to $44.8 million to $45.2 billion, primarily driven by FX impacts, but also underpinned by 'strength in our underlying business' including 'healthy member growth' and 'nice momentum in ad sales'. Advertising revenue is expected to roughly double this year. While operating expenses are forecast to remain unchanged, the increased revenue is expected to flow through to profit margins, resulting in an updated full year reported margin target of 30%, up from 29%. Management emphasized a strong content slate for the back half of the year, including returning titles like Wednesday and Stranger Things, and new films. Despite Nielsen Gauge data suggesting stagnation in domestic viewing share, management believes they will continue to grow share as linear TV migrates to streaming, pointing to a 50% increase in content amortization since 2020. Regarding AI, management stated that AI represents 'an incredible opportunity to help creators make films and series better, not just cheaper'. Overall, the tone suggests cautious optimism, with a focus on continued growth and innovation.

Netflix's financial performance indicates a positive trajectory. Revenue has grown steadily from $8.83B in Q4 2023 to $11.51B in Q3 2025, demonstrating strong top-line growth. The gross profit ratio has fluctuated, ranging from a low of 0.399 in Q4 2023 to a high of 0.519 in Q2 2025, before settling at 0.464 in the most recent quarter, suggesting some volatility in profitability but an overall improvement. Operating cash flow has remained consistently positive, with $2.83B generated in Q3 2025, indicating strong cash-generating capabilities. Total debt has decreased from $16.97B in Q4 2023 to $16.05B in Q3 2025, suggesting improved solvency and debt management. The company's ability to grow revenue, maintain positive cash flow, and reduce debt positions it favorably for continued success over the next 12 months. Furthermore, net income has increased significantly from $937.8M to $2.55B over the same period.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting effective cost management. Return on Equity (ROE) has improved, showcasing efficient capital allocation. While the Price-to-Earnings (P/E) ratio is elevated, it is potentially justified by the company's growth prospects. The Debt-to-Equity ratio has decreased, reflecting a healthier balance sheet and reduced financial risk. The current ratio is at a healthy level, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable combination of growth, profitability, and balance sheet strength, supporting a positive outlook for the next 12 months, although the high P/E ratio warrants close monitoring.