September 24, 2019
The end of the third quarter on Sept. 30 can’t come soon enough for Netflix.
The subscription streaming video behemoth saw all positive stock gains on Wall Street disappear at the close of trading Sept. 23 — with shares down 46% from a peak valuation in July.
With nonstop press releases touting programming defections (i.e. “The Office,” “Friends,”), executive hires, possible subscriber interest and low-ball pricing from pending SVOD newcomers Apple TV+, Disney+, HBO Max, Verizon’s BET+ and NBC Universal’s Peacock, Netflix’s invincibility has taken a beating.
Typically, any concern about Netflix would be quickly erased with the next earnings report. But following the service’s Q2 disclosure of rare subscriber losses in the United States and below-expectation sub growth internationally, all bets are off.
Co-founder/CEO Reed Hastings himself seemed to voice caution just last week telling an industry confab in the United Kingdom that “a whole new [SVOD] world [would be] starting in November.”
Fickle Wall Street is (albeit slowly) changing its tune on Netflix.
Of the 39 analysts covering Netflix, two have “sell” ratings for the stock, while nine have a “hold” on the shares.
Kannan Venkateshwar with Barclays said Netflix’s stock has become “very expensive” based on the growing costs required for future sub growth.
Mark Kelly, analyst with Nomura Instinct, told CNBC that increased third-party SVOD competition could make content more expensive and “diminish the price power” Netflix has exerted in recent years.
CNBC parent Comcast just expanded exposure for streaming service Xfinity Plex, and is launching the Peacock SVOD platform early next year.
Michael Pachter, a longtime Netflix bear at Wedbush Securities in Los Angeles, contends the challenges Netflix faces creating original content are no different than Disney+ & Co. face.
At the same time, Pachter says Netflix’s strategy of flooding the channels with content can’t mask quality issues.
“The company may brag about its Emmy nominations or its Oscar wins, but it has approximately 10 times as many shows eligible for Emmy consideration as HBO, which won handsomely in 2019 for multiple shows,” he wrote in a note.
Pachter suggests Netflix is on the verge of losing around 65% of its domestic viewing hours when Comcast, Warner/HBO and Disney/Fox launch services their services and allow their current deals to expire.
“We estimate that Netflix pays around $5 billion a year for this content, so it will have a ton of cash available to bid on other content, and its bid for “Seinfeld” shows that it is willing to raise the stakes for licensing content,” he wrote.
Indeed, Netflix inked an exclusive deal with “Game of Thrones” showrunners David Benioff and D.B. Weiss for a reported $200 million.
While Wall Street appears confident Netflix can continue growing subs worldwide, domestic growth will be challenged with the arrival of Disney+ and Apple TV+ in November.
“We think … that a slowing of domestic growth will continue to pressure the stock over the next several quarters,” Pachter wrote.