Topline: With its third-quarter earnings due next week, Netflix looks set to rebound from a rough few months by showing Wall Street that it can again fight off competition and weather the streaming wars.
- Once a high-flying tech stock that helped drive the bull market higher, Netflix shares, which currently trade near $280, have been flat in 2019—down 0.05%.
- The stock has lost over 30% since mid-July, when investors dumped shares following a disappointing second-quarter earnings report that showed a decline in U.S. subscriptions, the first such drop since 2011.
- While revenue grew 26% in the latest quarter, that showed a downward trend compared with the 40% growth posted a year earlier.
- The company’s slowing revenue and subscription growth is a sign that the streaming wars are heating up: Netflix CEO Reed Hastings admitted as much last month, warning of increasingly “tough competition” coming from Apple and Disney.
- Disney+ and Apple TV+ are both priced cheaper than Netflix, and will subsequently continue to compete for market share.
- Netflix shares rose almost 5% on Thursday, in part thanks to reiterated confidence from Goldman Sachs analysts, who said that it is unlikely to be replaced as the “primary streaming choice” for consumers.
Further reading: Wall Street analysts are generally positive on Netflix’s long-term prospects: The stock has 31 “buy” ratings, ten “hold” ratings and four “sell” ratings, according to Bloomberg data.
- UBS analyst Eric Sheridan recently lowered his price target to $370 from $420 per share, while still maintaining a “buy” rating. While he predicts the short term to “remain volatile,” citing weak demand in markets like Brazil and the U.K, Sheridan sees solid growth in the long term.
- Goldman Sachs analyst Heath Terry also lowered his price target, to $360 per share, but reiterated Netflix’s upside potential thanks to “a stronger seasonal period for subscriber growth” and a bolstered content lineup for the rest of the year.
- Piper Jaffray analyst Michael Olson puts Netflix’s price target at $440 per share, similarly citing a “more engaging content slate” in the third quarter. Trailer views for Netflix originals are up 17% from the previous quarter, he points out, thanks to the return of more popular series, such as Season 3 of Stranger Things.
Crucial quote: CreditSights analysts Hunter Martin and Jordan Chalfin, who admit future competition is a looming risk, wrote: “Despite our Underperform recommendation, it is important to highlight that we are not members of the ‘Debtflix’ permabear club.”
What to watch for: The company will report third-quarter earnings on October 16.