The streaming giant Netflix Inc (NASDAQ 🙂 starts in 2020 and the analyst community is increasingly divided about its fate. After following a strong growth strategy for many years, the company is starting to face competition it has never encountered before. This seismic shift in the industry is prompting analysts to lower their growth forecasts and advise investors to stay on the sidelines.
This week, the share was downgraded to a & # 39; sale & # 39; rating at Needham, who said the video streaming company was at risk of losing millions of US customers in 2020, given increasing competition, including cheap competitors. Earlier this month, Citi analysts lowered the stock to a "neutral" and said Street estimates for the stock are too high.
In the group of top five tech stocks that include Facebook (NASDAQ 🙂 and Alphabet (NASDAQ :), (NASDAQ: GOOG), Netflix won the least in 2019, rising just over 10% due to concerns from investors about future growth. The shares were traded at $ 298.44 at the end of yesterday.
Netflix monthly price chart
These bearish phone calls came after a few difficult quarters that Netflix reported for its growth in subscribers. In October, it missed its target for subscriber growth for the second consecutive quarter, raising questions about the streaming video giant's ability to continue to produce double-digit growth when traditional media companies devise their own streaming products.
In the normal scheme of things, these shortcomings would probably not have attracted so much negativity because the giant has consistently produced strong growth in the past and defeated analysts' expectations.
But the big concern this time is that the delay comes at a time when two major competitors, Walt Disney (NYSE 🙂 and Apple (NASDAQ :), entered the streaming video market with a competitive pricing structure.
Netflix "must add a second, cheaper service to compete with Disney +, Apple +, Hulu, CBS All Access and Peacock," Needham analyst Laura Martin wrote to customers, predicting that the company will have 4 million US subscribers next year. could lose if the company makes no changes.
Because the balance & # 39; cannot withstand lower revenues & # 39 ;, Needham recommended the creation of a price level with lower monthly costs, but that is supported by advertising revenues.
Spending more on content
Citi analyst Jason Bazinet said that Netflix should spend more on content or that estimates of Wall Street subscribers should decline after changing market conditions. And none of these scenarios is good for the stock. If Netflix releases more content, this will damage margins and decrease inventory by 15%, he calculates. While a delay in the number of subscribers may be the least of the two evils, causing a 5% drop in inventory.
These threats make Netflix a risky bet in 2020, but that doesn't mean the company has completely lost its fans. There is even a difference in understanding between the analyst community and what reflects the current stock price of the company.
"Because Net ix ix content investments, distribution partnerships, and marketing spending significantly raise subscriber growth, and the company is approaching a bending point in cash profitability, we continue to believe that NFLX shares will perform significantly better," wrote analysts at Goldman Sachs in a recent note, which awarded the 12-month price target of $ 420 per share.
The bearish rating is still a minority image on Netflix. There are seven companies with a sell-equivalent rating in stock, according to data collected by Bloomberg, compared to 29 buys and 10 hold ratings. The average price target is $ 353, which means an increase of around 19% compared to the current price of the share.
Bottom Line
The upward journey of Netflix shares has been largely unhindered in the last decade. But with increasing competition, rising costs and saturation in the domestic market, the streaming giant seems to be increasingly difficult to repeat that performance. For these reasons, 2020 can very well be a make or pause year for Netflix.
