in april of 2022 netflix surprised the markets by reporting its first subscriber loss in nearly 10 years the stock tumbled 35 the following day as investors panicked famed hedge fund manager bill ackman immediately sold his entire stake in netflix for a 400 million loss only after holding it for just over three months last april was a tough month for netflix stock yet fast forward and in one brief year netflix is up 41 from where ackman sold the stock and is up 84 since the low on may 12 in our free newsletter published on forbes we argued that “the day that netflix’s stock price dropped 35 was consequently one of the most important days in the company’s history in terms of its chances for a boost in revenue and a renewed uptrend patience though will be required as netflix has work to do” on the very day that netflix lost onethird of its value last year management announced its intention to cutoff password sharing and rollout a new ad tier we deemed the stock a buy and executed in august and again in early september what will make or break netflix’s price action will be next quarter’s earnings report as there will be one full quarter of the results from cutting off password sharing the bottom line is surprisingly stable for this company and what the market will want to see is top line impact from the two pivots announced a year ago currently our technical analysis points toward may 12th being the bottom for the stock in other words we do not believe the stock will dip below 200 before the macro environment clears up this is rare as our analysis points toward a few faangs retracing their lows in the coming quarters although our firm is longterm bullish on the stock we don’t believe now is the time to build a longterm position instead we plan to further trim our position and build at lower levels more details are below at the same time that netflix lost its growth status the company made the biggest announcement in its history – which was to cutoff password sharing for 100 million users and to rollout an ad tier that will monetize higher than the basic and standard subscription plans one could argue that moving from dvds to overthetop ott was the biggest announcement in the company’s history yet at the time netflix had nothing to lose today the company is the top streaming service in the world and has held this top position despite media titan disney’s attempt to reclaim the media throne in other words netflix’s two pivots are high stakes the good news is investors won’t have to wait too much longer to find out if the pivots are successful in the most recent quarter global paid adds of 175m came in slightly shy of analyst estimates of 18m for password sharing the latin america region was a test region and the q1 results provided some clues as to how a broader rollout will perform according to management there was a cancel reaction which later eased the region reported a loss of net adds of 04m compared to net adds of 176m in latin american last quarter yet the revenue was up 7 yoy 13 on constant currency basis the company stated that other regions such as canada were “directionally consistent with what we saw in latin america” there was a similar pattern in the united states canada ucan region where there was low net adds yet higher revenue growth the region reported 01 net additions with revenue up 8 yoy in the year ago quarter these regions were flat or reported a decline notably churn can be higher coming out of q4 for netflix since that quarter has high net adds another observation is that latam and ucan both had expanding arm or average revenue per membership whereas the other two regions saw a lower arm this could be encouraging in terms of a broader rollout on password sharing driving more top line growth in the second half of the year   ucan up 9 from 1491 to 1618   latam up 3 from 837 to 860   emea down 6 at 1089 this quarter compared to 1156 in the year ago quarter   apac down 13 at 803 this quarter compared to 921 a year ago notably average paid membership increased in apac and was up 17 this is clearly a large region but there’s been some attention on india specifically where netflix has lowered prices this would make sense to where net adds increased but arm decreased upfront season is coming for netflix which means netflix will likely have to state the company’s expected scale for the ad tier come q3q4 right now the company is not guiding for this but analysts believe it will be in the 13m range per forbes and bloomberg “after a slow start netflix ad tier has been gaining traction with us subscribers after analyzing their internal data bloomberg reported in its first two months netflix had one million active users before its launch netflix had projected 11 million by year end 2022 increasing to 133 million by the third quarter 2023 industry analysts project netflix could eventually wind up with 30 million us subscribers on its ad supported tier the us is one of the 12 markets where netflix is now selling ads at its most recent earnings report netflix had 74 million total us subscribers with 231 million worldwide” for our purposes as investors the most important aspect of the ad tier is that it will be accretive to the bottom line as the ad tier will monetize at a higher rate than netflix’s basic and standard plans the ad tier will be 699 per month plus ad dollars with that management believes there will be “50 or more incremental profit contribution to the business” netflix’s bottom line has stabilized in the recent report free cash flow came in at an impressive 217 billion with management raising full year guidance to 35 billion this is an improvement of 65 billion in free cash flow from 5 years ago when the company was losing 3 billion per year in 2019 the free cash flow margin has more than doubled from last year at 259 compared to 1019 in the year ago quarter gross debt is still high at 145 billion which is inherent to the business model however net debt is improving at 11x compared to 13x last quarter with net debt of 67 billion compared to 837 billion last quarter netflix still trails other faangs on its investment rating yet it’s notable the company has seen an upgrade from moody’s from junk to investment grade netflix has been the black sheep of the faangs in this regard however a large part of our thesis is based on the company’s change in profile in terms of bottomline strength on another positive note moody’s stated the following regarding netflix’s ad tier “moody’s anticipates that growth in subscribers from the recently launched ad supported service will be gradual but steady and provide a strong longterm opportunity for revenue growth” how to position now and throughout 2023 as a leading alltech portfolio our firm is cautious when it comes to timing as tech can be volatile we find the most success in matching quality stock ideas with technical analysis this provides some insurance should a speculative bet not work out for example should netflix’s management team not be able to execute it also helps to increase gains as buying in april of 2022 would have produced 40 gains versus in may of 2022 at 80 gains this is a substantial reward for only waiting one additional month regarding the bigger technical picture netflix remains range bound between 304 and 347 we’ll start with the red count below if we see a breach of the below trend channel that will be the first warning a break below 304 will open the door to our 1st target zone between 257 – 235 on the other hand if we see a breakout above 347 we would not consider this breakout a buy the reason is because the bullish pattern that started on may 12th of 2022 is a 5 wave pattern any break above 378 would be considered a big warning as it would be completing the 5 wave pattern and setting up for a rather deep retrace we do not believe a buy above 257 is worth the risk considering both the macro environment and technical pattern in netflix right now if we see favorable results regarding netflix’s pivot and yet pricing comes under pressure from the macro environment we will be looking to aggressively accumulate at much lower levels the exact levels we buy are shared the moment we execute with premium members look for password sharing to contribute to results next quarter due to a broader rollout including in the united states this will be a line in the sand moment for netflix’s new narrative if this hurdle is cleared then look for the ad tier to contribute to earnings results by q3 and q4 of 2023 as the company will need time to grow the audience to a meaningful size for ads to have an initial impact the target is in the range of 10 million to 15 million if we assume 13 million is the midpoint although some investors will become aggressive around these targets being hit early it’s better to let management successfully pivot than to force exact timing as long the top line bottoms in the june quarter with evidence of an acceleration for the september guide on the top line then that’s good enough for our position as stated we have buy levels that we target which we share with our premium research members each week as the stocks progresses we believe our target buy level will set us up for gains in netflix stock when the next bull cycle begins we provide in depth macro and individual stock analysis so that readers can better understand why we buysell in this market we frequently take gains we also issue realtime trade alerts when we enter and exit stocks ytd our firm has held the two top performing assets in the tech industry – nvidia and bitcoin at high allocations we also issued a buy alert with nvda last year at 108 and with bitcoin in the 16000 region based on the type of analysis we provide you can learn more here including information on our next webinar this thursday at 430 pm eastern where we review our positions live please note the io fund conducts research and draws conclusions for the company’s portfolio we then share that information with our readers and offer realtime trade notifications this is not a guarantee of a stock’s performance and it is not financial advice please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis beth kindig and the io fund own shares in nflx at the time of writing and may own stocks pictured in the charts if you would like notifications when my new articles are published please hit the button below to follow me