TradeSmith Snippets: Commercials on Netflix, Ford’s $1 Billion Surprise, and a New Catalyst to Send the Stock Price Higher for Palo Alto Networks
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I’ll let the team take it away from here.
Enjoy your Monday — Keith Kaplan, CEO, TradeSmith
Snippet No. 1: NFLX Is Open for Ads
OverviewNetflix is launching a lower-cost subscription that may cost between $7 and $9 per month.
The Breakdown
Competition is fierce in the streaming world, and Netflix has been losing subscribers left and right.
The streaming service lost 200,000 subscribers in Q1, followed by 970,000 more in Q2.
It does expect to turn things around somewhat by adding 1 million new subscribers in Q3, but the company knows that to stay relevant, it’s going to need to find new ways to draw more people in — both new subscribers and people who previously cancelled their subscription.
A new ad-supported membership tier, if it is priced at $7, would be less than half the standard membership fee of $15.49.
In exchange for the lower price, subscribers would see four minutes of ads per hour.
For companies wishing to advertise on the streaming giant, Netflix is planning to charge $65 for every 1,000 viewers reached.
The TradeSmith Takeaway
Senior Analyst Mike Burnick has previously said that Netflix is the buy of a lifetime, but he wouldn’t recommend entering or adding to a position just yet.
One thing he wants to see first is how the subscriber count drama will play out.
Even if Netflix does add 1 million subscribers in the quarter that’s about to end, that doesn’t make up for the fact that it lost more than 1 million subscribers in the first two quarters of the year.
This new ad-supported membership tier will also reportedly be rolled out slowly, between this October and early next year, so it may take time to see subscriber totals meaningfully increase.
The new ad tier and subscription fees could generate $8.5 billion by 2027, but that is five years away.
In the meantime, Mike says to make sure to follow along with our tools to see potential entry signals and to be ready for when NFLX returns to the Green Zone.
Snippet No. 2: Classic Carmaker’s Supply Chain Woes Continue
OverviewFord Motor Co. (F) dealt with $1 billion in unexpected supplier costs in the third quarter.
The Breakdown
Ford is working to restructure its global supply chain, as it expects to lose $1 billion in unexpected supplier costs.
The iconic car company said that supply problems also resulted in shortages that prevented between 40,000 and 45,000 vehicles from reaching dealers.
It plans to complete and deliver those vehicles in the fourth quarter.
CFO John Lawler will lead the charge of supporting more reliable sourcing of components and internal development of key technologies until someone is appointed to Ford’s newest position of chief supply chain officer.
The TradeSmith Takeaway
With Ford not set to share its Q3 results until Oct. 26, this could be a strategic announcement to give bad news time to sink in while the company addresses how it plans to move forward.
In the launch of our Buy This, Not That series, we put Ford under the microscope and shared why it was a stock to avoid.
Then we explained why Progressive Corp. (PGR) was a better buy instead.
Here are all the reasons why.
Snippet No. 3: Another Day, Another Tech Stock Split
OverviewOn Sept. 14, the cybersecurity company Palo Alto Networks (PANW) completed its three-for-one stock split. Palo Alto Networks provides cybersecurity for industries ranging from health care to oil and gas, an increasingly critical service as there were a record number of data breaches reported in 2021.
The Breakdown
When shares reach a certain price, there is often a psychological barrier facing retail investors; they may rather own 500 shares of a $1 stock than just one share of a $500 stock. A split makes a stock that was previously viewed as expensive appear more affordable.
Trading at around $548 before the split, PANW opened at $183.75 on the day of the split (Sept. 14).
The TradeSmith Takeaway
Bank of America found in a study that since 1980, companies that split their stock have outperformed the S&P 500.
| Time Frame | S&P 500 Performance | Stock Split Performance |
|---|---|---|
| Three Months after Split | 2.1% | 7.8% |
| Six Months after Split | 4.4% | 13.9% |
| One Year after Split | 9.1% | 25.4% |
There are a few reasons why this happens: More people want to invest in the stock — which can send the price higher — and the companies that do a split tend to have outperformed the market before the split and can continue to do so after.
PANW’s three-for-one split can be viewed as a short-term to mid-term bullish catalyst for a company that already has a long-term catalyst of operating in the cybersecurity sector, which is expected to increase in value from $139.77 billion in 2021 to $376.32 billion in 2029.
An Entry Signal was triggered on Sept. 9 for PANW, and the stock has a medium-risk Volatility Quotient (VQ) of 29.34%.
VQ Level Breakdown:
- Up to 15% = Low Risk
- 15%-30% = Medium Risk
- 30%-50% = High Risk
- 50% and above = Sky-High Risk