Netflix (NASDAQ:NFLX) investors beware. The streaming giant has been downgraded by Needham’s Laura Martin from ‘neutral’ to ‘underperform’, anticipating a loss of 4 million domestic subscribers over the course of next year. The analyst is basing her rating on the intense competition Netflix is facing from other streaming services such as Disney (NYSE:DIS), Apple (NASDAQ:AAPL), Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T).
We ask is Apple TV+ worth it?
The timing of the news comes at an interesting point for Netflix stakeholders, in which the company has enjoyed a rewarding week both in terms of award season and streaming figures. The company earned a record 34 golden globe nominations across film and TV, and their blockbuster ‘The Irishman’ from acclaimed film-maker Martin Scorcese achieved 26.4 million streams in its first week.
How will the downgrade affect Netflix?
These three news stories coming in the space of the same week paint a very interesting outlook for Netflix investors. While the Golden Globes nominations and the success of ‘The Irishman’ left the stock price relatively unaffected, Needham’s downgrade caused the ‘N’ in FAANG to fall 3% yesterday. It seems investors are a lot more concerned about the increasing competition and what it will mean for Netflix’s bottom line rather than award-season success. This situation draws comparisons to the start of this year when, on the day Netflix was awarded its first best-picture nomination for the movie ‘Roma’, the stock dropped 3% thanks to a slight miss on sales in the previous week’s earnings report.
Find out who are the 2 streaming services affected the most by Disney+ so far.
Netflix has enjoyed an extended first-mover advantage in the industry. This has allowed it to focus on its content offerings and become an incredibly successful studio in its own right. However, at its roots, is Netlfix a studio?
Netflix’s Defensive Strategy
With a wave of competitors hitting the streaming shore, Netflix is going to have to react. With this new influx of services, streamers are going to reconsider their monthly subscriptions. The performance of Netflix stock is closely linked to its subscriber base, as we see in Q2 of this year when a loss of 126,000 subscribers resulted in a 10% dive.
While 4 million is a big number to be bandied around by Needham, the streaming giant still needs to create a defensive strategy for any eventual subscriber drop-off. The method backed by Needham to introduce a lower-cost ad-supported tier is one that I’m sure has been thrown around the Los Gatos offices for years, but may take away from the strength of Netflix’s content and its ‘binge-ability’.
One slightly out-there way of navigating the streaming wars battlefield could be to control both the content and the delivery. Apple and Amazon (NASDAQ:AMZN) enjoy an advantage over their competitors in the space as they both own their own streaming platforms in Apple TV and the Amazon Fire TV Stick. Could an acquisition of Roku (NASDAQ:ROKU) afford Netflix the same advantage? Whatever its eventual strategy turns out to be, one thing is for sure, with the oncoming stream (geddit?) of new players, Netflix can’t sit still.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple, Disney, Roku and Netflix. Read our full disclosure policy here.
Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.