Netflix’s stock price rose 10% in after-market trading after its much-anticipated third-quarter earnings report late yesterday.
The company reported strong revenue and earnings, and a slight miss on total paid subscriber adds: 6.8 million versus a projected 7 million, with U.S. adds at 600,000 instead of a projected 800 million. (See separate DND article for more specifics on the Q3 results.)
Still, analysts’ reactions so far haven’t all been positive.
One notably negative reaction comes from eMarketer forecasting analyst Eric Haggstrom: “Netflix’s miss on subscribers in the U.S. spells trouble for the company ahead of heightened competition,” he asserted in a statement. “The fourth quarter represents a completely new ballgame for Netflix, as Disney+ and Apple TV+ will compete not just for subscribers, but for hit shows, as well. The fact that Netflix has shown disappointing growth without the new competition present is a negative omen for Netflix in 2020 and beyond.”
(Also see Jumpshot CEO Deren Baker's argument for why Netflix is the most vulnerable streaming player now.)
BMO’s Daniel Salmon offered a much more positive assessment in his note to investors.
The internet and media analyst Daniel Salmon acknowledged that Netflix is “not quite fully back on track” after its poor Q2 subscriber growth performance, with subscriber churn in the U.S. still “slightly elevated” following an increase in its standard price-per-month earlier this year.
Salmon also acknowledged the “competitive launches still sitting on the horizon.”
However, he reiterated Netflix as a “top pick” to buy (along with other “global streaming leaders,” including Amazon and Disney).
BMO thinks investors “should be building positions as [Netflix] works through competitive worries and begins to see [free cash flow] losses narrow in 2020,” he said.
Netflix’s fourth-quarter guidance “has ‘a lot of moving parts,’ according to management, but that includes the biggest original film slate in the company's history, and no price increases in any major countries,” Salmon added.
Those releases will include Martin Scorsese’s “The Irishman,” “Rhythm + Flow,” and “El Camino: A Breaking Bad Movie.”
BMO continues to forecast Netflix’s 2019 cash expenses for content at $15.1 billion.
At Pivotal Research Group, entertainment/interactive subscription services analyst Jeffrey Wlodarczak concluded that in a climate of “overdone” concerns about coming competition and worries about subscriber growth, Netflix had “delivered overall” in Q3.
He reiterated his “buy” rating, and raised Pivotal’s target price for the stock by $50, to $400.
“We remain bullish on the [Netflix] story, as the OTT opportunity globally still appears materially underpenetrated and the entrance of Disney+ is likely to accelerate the trend away from traditional PayTV,” Wlodarczak wrote.
Netflix “has a massive head start on potential competitors, has created substantial barriers to entry and ultimately we think they win the global OTT race and generate material profitability…
“Our view is that very few players can (or will) be able to keep up with [Netflix’s] content spend levels and that ultimately, this will be a 2-horse race [Netflix and Disney], where both horses can win…”
Wlodarczak believes that “Amazon [will be] on the periphery, and there is a reasonable shot that AT&T management will screw up HBO [Plus] as a competitor.”
The biggest loser, in his view, is likely to be non-Disney traditional pay-TV players “that rely on rising per-subscriber fees and high advertising loads, and don’t have other businesses to offset likely accelerating weakness” in pay TV.