3 Things That Can Go Wrong for Netflix on Monday

Netflix (NASDAQ: NFLX) is coasting, hitting new all-time highs this week as it continues to grow the undisputed top-dog platform in premium video streaming. This is the kind of momentum that suggests we'll have another blowout financial report when Netflix reports its fourth-quarter results next week -- but the market's reaction isn't a slam-dunk to be all glitter and confetti.

Every financial update matters, and there's a lot riding on what Netflix will say shortly after Monday's close. As a longtime shareholder, I'm hoping for the best. Netflix has grown to become my largest investment. However, I also wouldn't be shocked if the stock took a step back next week. Let's go over the three reasons why things may not work out for Netflix investors next week.

1. Winter is coming

Most investors haven't started assessing the impact that next month's Winter Olympic Games will have on Netflix. It could bleed into its subscriber growth. With viewers glued to 17 days of icy competitions, attracting new Netflix users isn't an easy sell.

Netflix warned ahead of the 2012 and 2016 Summer Olympic Games that the athletic distractions weren't good for its near-term business prospects.

• "[T]his quarter the Olympics are likely to have a negative impact on Netflix viewing and sign-ups," CEO Reed Hastings wrote in his shareholder letter during the summer of 2012, and the subsequent quarter turned out to be a rare miss for Netflix's historically conservative guidance.
• "Our global membership forecast for Q3 includes an impact from the spectacle of the Olympics, on par with what we experienced four years ago," Hastings wrote four years later. Thankfully for investors, Netflix passed that quarter with flying colors that time.

The moral of the story is that Netflix often strikes a cautionary tone in its forecast for an Olympics-containing quarter. A blowout fourth quarter could translate into a sell-off if guidance is soft for the current quarter, something that could happen if Netflix sees gross adds taking a breather during next month's games. It might not be a coincidence that Netflix stock's biggest annual gains recently -- 2013, 2015, and 2017 -- have all been odd-numbered years.

2. Helium translates to hype

Netflix shares have risen by more than 60% over the past year, a pace that's nearly twice its revenue growth, and more than twice its subscriber growth in that time. A stock outpacing some of its fundamentals isn't a deal breaker, but it's something that heightens expectations heading into any financial announcement.

Expectations are high for Netflix on Monday. Its mid-October guidance calls for revenue to clock in at $3.274 billion, as subscriber growth of 23% and an uptick in average revenue per member result in 32% top-line growth. Netflix sees earnings more than doubling, to $0.41 a share. Analysts are perched around Netflix's guidance with their forecasts, suggesting that Netflix won't have another superhuman performance. If the stock's going to keep rallying, it's going to need another monster showing like it did last time out.

3. Competition is growing

A lot is happening in the market that Netflix continues to dominate. Hulu turned heads with its Emmy-grabbing The Handmaid's Tale. Prime Video is scoring by putting out box-office hits before they hit its platform. Networks are beefing up their on-demand offerings.

Netflix is still the one that everybody's chasing, but the same cord-cutters who have said goodbye to clunky and expensive cable-television bundles will soon be deciding which premium services they want to keep paying for, given the glut of choices. Netflix investors have accepted decelerating subscriber growth as a constant, but if the wide array of options results in a sharper slowdown than expected, it will sting the market-darling's stock.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.