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Can Netflix’s share price rebound as Apple and Disney prep streamers?

Investor caution is creeping into Netflix’s [NFLX] share price as the company anticipates the launch of all-new competitive platforms from a string of entertainment heavyweights. 

For the first time in 2019 Netflix’s share price dropped into negative territory for the year, down 4.88% since the start of 2019 after closing at $254.59 on Tuesday. The previous Friday, in front of the conference by the Royal Television Society, Netflix CEO Reed Hastings was reported to have stated that the company faced stiff competition from the likes of Disney+ and Apple TV+. By comparison, this time last year, the company had gained by more than 92% from the start of 2018, after reporting quarter-after-quarter of growth and investment. 

Netflix’s share price took a particular turn after falling short on its guidance for Q2 subscriber growth. The company reported global net adds of 2.7 million, below the five million expected. The company also noted it had lost more than 100,000 subscribers in the US, despite reports suggesting it expected to gain 300,000 new subscribers. 

While the company has said that it expects a stronger Q3 – reported on 15 October – some are sceptical that this will be enough to lift the stock as Disney + and Apple TV + look to launch this November.

 

Content is key 

Netflix’s defence for weak subscriber growth in Q2 was based on its content slate, which it has promised will be vastly improved for the forthcoming quarterly results. 

The company is projecting a stronger subscriber numbers for Q3 on the heels of the launch of the third season of ‘Stranger Things’ earlier this year, and upcoming seasons of ‘Orange is the New Black’ and ‘The Crown’. It predicts to gain seven million global paid net additions for the quarter. 

So far, it seems the streamer is on track. Credit Suisse analysts said the first seven weeks of the quarter showed a broad-based rebound in overall trends for the company, according to the Motley Fool. Meanwhile there was “significant reacceleration” in Netflix’s mobile app downloads so far in Q3, Bank of America analysts told the Motley Fool.

However, some are still sceptical that strong Q3 figures are enough to lift the company for the long-term as new players come into the fold this autumn. 

“Investor interest in Netflix is at a nadir with a view the stock will not work given these competitive launches the next few quarters,” said Credit Suisse analyst Douglas Mitchelson in a note to clients. “This suggests that for Netflix shares to rebound, 3Q19 results would have to come in well ahead of expectations.”

“Investor interest in Netflix is at a nadir with a view the stock will not work given these competitive launches the next few quarters” - Credit Suisse analyst Douglas Mitchelson

 

It will get worse, before it gets better

Bernstein analyst Todd Juenger states that Netflix has the potential to sink an additional 21% before coming up against Disney [DIS] and Apple’s [AAPL] upcoming platforms.

However, in his client note he suggests that the rebound will be significant, gaining a near 50% from its 19 September price of $286.60 to $450 in the next 12 months. This is because he believes new launches will not significantly harm Netflix’s business in the long-term. 

 "The belief that new services will take market share from Netflix rests on an assumption that the services will compete with each other for a fixed number of potential subscribers. We don't believe that's true. We do not believe the launch of additional SVOD [subscription video on demand] services will cause existing Netflix subs to cancel, or future Netflix subs to not materialise,” he explains in his noted, while reiterating his ‘outperform’ rating.

Mitchelson adds that Netflix is way ahead of competition in terms of its content offering. “We have tracked 48 titles in development at Disney+, 43 at Apple’s TV+ and 23 at HBO Max vs. Netflix with 71 English-language dramas, 62 non-English series, 32 comedies and 108 films in development,” CNBC reported him saying.

 

Market cap $113.71bn
PE ratio (TTM) 102.24
EPS (TTM) 2.54
Quarterly Earnings Growth (YoY) -29.60%

Netflix share price vitals, Yahoo finance, 25 Septemnber 2019

 

Consensus

CNN states that 34 analysts offering 12-month price forecast have a median target of 420.00, with a high estimate of 515.00 and a low of 188.00. This median estimate represents a 62.90% increase from the current market price.

The current consensus rating among 39 polled investment analysts on the stock is a ‘buy’, CNN states, a rating that has held steady since July.

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