Analyst: Expect Netflix Q4 Sub Growth Miss

In recent months, Netflix critics have focused on the streaming giant’s stagnate domestic subscriber growth as evidence of cracks in the Wall Street darling’s veneer.

Longtime Netflix bear Michael Pachter, with Wedbush Securities in Los Angeles, suggests the service is going to miss meeting fourth-quarter (ended Dec. 31, 2019) domestic subscriber growth projections of around 600,000. Netflix is projecting 7 million new subscribers outside the United States.

“Domestic subs guidance and overall [earnings per share] guidance may be at risk given the heavy television advertising we observed in the latter half of Q4,” Pachter wrote in a Jan. 17 note.

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Netflix typically ramps up marketing efforts to drive lagging subscriptions when the number of existing subs not renewing (churn) increases.

The analyst contends marketing spending and a “solid slate” of high-profile new content released during the quarter should help dampen overall subscriber churn.

“We expect international subscriber growth momentum to continue,” Pachter wrote.

Indeed, the launch of Disney+ on Nov. 12 and the impending loss of most Disney and Fox content could cost Netflix another 25% of total viewing hours, according to Pachter, who ads that content from Comcast, Fox, Disney and Warner Bros. accounted for 60% to 65% of Netflix viewing hours in 2019.

“We expect most of it ultimately to migrate away,” he wrote.

That said, the flurry of new over-the-top video platforms does not imply the imminent demise of Netflix as Pachter expects the migration of third-party content to be relatively slow due to existing licensing contracts.

While it’s a guess whether Netflix (or any distribution channel) can replace content sufficient to subscribers and viewers loyal, Pachter think it is likely Netflix will pay whatever it takes to attract high quality content, and believe its competitors will be slow to gain scale.

Separate Wall Street reports say Netflix will spend upwards of $17 billion on content in 2020 — dwarfing all competitors, including Disney+.

“We expect the status quo to be largely maintained until the end of 2021,” he wrote. “For now, Netflix provides tremendous value for its subscribers.”

Netflix reports fourth-quarter fiscal results on Jan. 21.

 

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