Netflix (NFLX - Free Report) has fallen off its high horse over the past 3 months of trading. Shares have fallen a sizable 22% since its disappointing 2nd quarter earnings. In the face of an increasingly competitive streaming space, the video streaming king demonstrated a domestic subscription decline and a sizable deceleration in international subscription growth. Analysts have been driving their estimates down and pushed NFLX into a Zacks Rank #4 (Sell).
Netflix has the chance to redeem investor faith in its forthcoming 3rd quarter earning expected Wednesday, October 16th.
NFLX has historically been a big mover on quarterly earnings releases with the last 6 reports causing an average price action of 6.3% (3 up, 3 down). Analysts have big expectations for Wednesday’s announcement, with Zacks Consensus estimates quoting an EPS of $1.05 on $5.25 billion in revenue. This would demonstrate year-over-year growth of 18% and 31%, respectively, and would mark the firm’s best financial quarter to date.
The metric that is going to drive the stock one way or the other is subscription growth. Analysts are projecting 802,000 additional subscribers domestically and 6.2 million additional subscribers internationally. A miss on this metric will weigh negatively on NFLX’s share price.
Competition in the Space
The video streaming market is on fire, and the smoke is only going to thicken as competition saturates the industry. Apple (AAPL - Free Report) and Disney (DIS - Free Report) both have subscription-based streaming services on the verge of release, creating a threatening market environment for industry pioneer Netflix.
Disney is releasing Disney+ November 12th, and it is going to shake up the streaming space. Disney will have a massive library of over 500 of your favorite movie titles (with 100 of them being straight from theaters) and more 7,500 TV episodes, in the first year of its release. All of your favorite movie Pixar classics, Star Wars Trilogies and even the beloved Marvel movies will be available at launch. Disney is also launching a handful of anticipated series that should grab subscriber attention.
Disney is pulling all of its content off of Netflix and pricing its “must-have” streaming subscription at $6.99 (or an annual fee of $69.99), almost half of Netflix’s comparable package. Disney has an enormous library of nearly a century of quality original content, and its recent acquisition of 21st Century Fox added another vast layer of exclusive content. Disney’s streaming service will undoubtedly be a threat to Netflix.
Apple will be releasing Apple TV+ November 1st and it will undercut the pricing of every other streaming service in the market at $4.99 per month. Apple rarely short sells its consumer base and has held a high-quality standard that has become synonymous with the brand. I expect that this upcoming subscription streaming service will hold the same quality standards.
Apple has an ostensibly unending cash pile to attract the best in class Hollywood talent. World-renowned director Steven Spielberg is working on an exclusive WWII series for Apple. Jennifer Aniston, Reese Witherspoon, and Steve Carrell will be staring in another exclusive series for the streaming service. There is already a long list of anticipated shows ready for the launch of Apple TV+, and the list continues to grow.
Disney+ and Apple TV+ will both be released internationally next month, and both of these brands hold substantial global clout. I believe that these two brands create a significant threat to Netflix’s global positioning.
Disney’s movie titles are known around the world, with many international box-office hits. When an international consumer is deciding on a streaming service, they are going to consider familiar titles and price point. I would think that Disney+ is the clear winner when those are the two factors going into the choice.
This week’s earnings report is going to be crucial to Netflix’s positioning before another enormous wave of competition enters the space. NFLX needs to see robust subscription growth globally. International subscribers are the primary growth driver for this firm, and the entrance of Apple and Disney could be hazardous for NFLX.
Wednesday after the bell, keep an eye out for Netflix’s subscriber growth and management’s guidance as these will be the primary catalysts of a share price move.
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