Robot Consulting completes $15 million IPO on NASDAQ

Doug Busch

As Netflix stock fades, with a soft reaction to its earnings on Friday, a different class of internet plays in Reddit, DoorDash, and Alphabet are stepping up.

Reddit's year-to-date return may appear underwhelming at first glance, off 13%, but that figure masks a powerful move. Over the past three months, the stock has surged nearly 50%, outpacing the broader market.

On the daily candlestick chart, the important $100 level played a pivotal role in shaping a bullish inverse head-and-shoulders pattern, despite a brief dip below that mark in April that formed the head.

The $125 neckline was decisively broken on June 17, confirming the pattern. Now, attention shifts to a developing bull flag with a breakout trigger at $150. A move above that level could set the stage for a sharp rally toward $188 later in the third quarter.

DoorDash is a great example of a stock that keeps offering high-quality points to buy as the price grinds higher. It runs counter to the common belief that opportunity only comes after pullbacks.

On the chart, the stock recently broke above a bull flag pivot at $224, following a clean move through a double bottom at $201.13. The round $200 level acted as psychological support, reinforcing the setup.

Given the broader market looks poised for a healthy pause, patience is warranted. A pullback closer to $225 could offer an attractive opportunity to buy.

It is also worth acknowledging the strength of this move. DoorDash, which recently joined the S&P 500, has more than doubled from the round $100 level it touched in July 2024.

No coverage of the internet group would be complete without mentioning Alphabet. While it may no longer command the spotlight it once did, the stock still holds significant weight as the top holding of the Communication Services Select Sector SPDR Fund, or XLC, XLC, comprising nearly 20% of the fund.

Technically, Alphabet is trading just above a cup-with-handle pivot at $180. The setup suggests potential for a move to fill the upside gap from Feb. 4, which sits just above the $200 level.

It is worth noting that a previous breakout above a bull flag at that same $200 level failed, a move that often signals a trend is running out of steam. In this case, it marked the beginning of a notable decline that didn't end until the stock hit its lows in early April.

Concerns abound, but expect Google to climb its wall of worry.

Write to Doug Busch at douglas.busch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

Tech stocks were mixed late Friday afternoon, with the Technology Select Sector SPDR Fund (XLK) easing 0.1% and the SPDR S&P Semiconductor ETF (XSD) adding 0.6%.

The Philadelphia Semiconductor index was 0.1% lower.

In corporate news, Microsoft has stopped selling new movies and television shows on Microsoft.com, the Microsoft Store on Windows, and the Microsoft Store on Xbox, the company said Friday. Its shares were down 0.4%.

Joby Aviation Chief Executive JoeBen Bevirt said the era of "flying cars" is nearly here, as the company plans to launch commercial electric air taxi service in Dubai next year, according to a Friday interview with The Information. Joby shares rose 1.9%.

Dell has the potential to post EPS of $19.01 in 2030, more than doubling EPS of $8.14 recorded in fiscal 2025, BofA Securities said in a note. BofA raised its price target on the stock to $165 from $155 and kept its buy rating. Dell jumped 6%.

Alphabet is expected to post better-than-projected Q2 results amid a boost from an improved macro environment and forex tailwinds, BofA Securities said. BofA raised its price objective on the company to $210 from $200 while reiterating its buy rating. Alphabet shares rose 0.6%.

Investors appear to be a bit underwhelmed by Netflix’s NFLX Q2 report, despite the streaming king posting favorable quarterly results after market hours on Thursday.

Down 5% in this morning's trading session, some profit taking may also be attributing to the post-earnings dip in Netflix stock as NFLX is still up more than +30% year to date and is sitting on monstrous gains of nearly +500% in the last three years.

This makes it a worthy topic of whether it's time to get in on the profit taking, buy the post-earnings dip, or hold Netflix stock.

Netflix’s Favorable Q2 Results

Exceeding earnings expectations, Netflix’s Q2 net income came in at $3.13 billion or $7.19 per share and above the Zacks EPS Consensus of $7.07. Year over year, Netflix’s Q2 EPS spiked 47% from $4.88 in Q2 2024. This came on Q2 sales of $11.07 billion, which increased 16% from the comparative quarter but slightly missed estimates of $11.08 billion.

Notably, Netflix’s operating margin during Q2 was 34.1%, up from 24% a year ago, with free cash flow soaring 91% to $2.3 billion.

Netflix’s Q2 Subscriber Growth

Although Netflix no longer reports official quarterly subscriber numbers, the streaming giant is thought to have added 5.1 million new net subscribers during Q2. However, this fell below many analysts' forecast of 6 million and was down from 8.05 million new net subscribers in Q2 2024.

Still, Netflix’s total subscribers have risen to over 300 million thanks to its global reach, strong content pipeline, and the growth of its more affordable ad-tier, keeping the company firmly ahead of Disney’s DIS streaming services and other platforms such as Amazon’s AMZN Prime Video and Paramount Global PARA.

Netflix's Revenue Guidance & Margin Outlook

Optimistically, Netflix raised its full-year 2025 revenue guidance to $44.8-$45.2 billion from its previous forecast of $43.5-$44.5 billion. The current Zacks Consensus calls for Netflix’s top line to expand 14% this year to $44.55 billion, with fiscal 2026 sales projected to increase another 12% to $50.05 billion.

It’s also noteworthy that Netflix slightly increased its full-year operating margin guidance from 29% to 29.5%, although many analysts were looking for a margin range between 30-31%.

Monitoring Netflix’s P/E Valuation

What may have dampened excitement for Netflix’s favorable Q2 report is that at 50X forward earnings, NFLX does trade at a noticeable premium to the broader market, with the S&P 500 at 24X. This is also well above Disney and Paramount at 21X and 9X forward earnings, respectively, and even Amazon at 35X.

Bottom Line

For now, Netflix stock lands a Zacks Rank #3 (Hold). Enthusiasm for Netflix’s growth expectations appears to be already priced into its stock, as investors may have been looking for more exceptional upside surprises in its Q2 results.

That said, holding NFLX in the portfolio is still worthwhile considering Netflix’s market dominance, as more than 20% EPS growth is in the forecast for FY25 and FY26, and should help the streaming king grow into its somewhat stretched P/E valuation.

This article originally published on Zacks Investment Research (zacks.com).

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