Netflix (NFLX - Free Report) is the worst performing FAANG stock over the last 12 months and it’s hardly close. Shares of the streaming TV giant are down roughly 2%, while the S&P 500 surged 25%. The question is will Netflix stock make a comeback in 2020 as it faces challenges from Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and other giants?
Still Binge Worthy?
Netflix fell short of its own subscriber growth estimates in the trailing two quarters, including a substantial second quarter miss (2.7 million vs. 5 million). Last quarter’s miss was much smaller, but the last three times that Netflix failed to match or top its own quarterly subscriber growth estimates it went on to crush its estimate the next period by roughly 1 million.
Despite the recent setbacks, which clearly worried investors, the streaming TV firm closed last quarter with 158.33 million global paid subscribers—60 million in the United States. Netflix is still by far the largest streaming TV company in the world and executives expect to add 7.6 million new users (7 million of which are expected to come from its international segment) during Q4 to close 2019 with 165.93 million.
Meanwhile, Amazon (AMZN - Free Report) Prime reportedly claims over 100 million users, though it is not clear how many people use Prime Video. Hulu (now controlled by Disney) last reported 28 million users. And this is where things get more sticky for Netflix.
Disney+ launched on November 12 at $6.99 per month. Users have access to old and new content from its name shake brand, Pixar, Marvel, Star Wars, National Geographic, and more—bolstered by its Fox deal. Plus, the entertainment conglomerate offers a bundle package of Disney+, ESPN+, and ad-supported Hulu for $12.99 a month, which costs the same as Netflix’s most popular standard plan.
Barclays analysts said recently that investors have already valued Disney’s streaming business at more than $100 billion. Looking ahead, Disney has targeted between 60 million to 90 million subscribers globally by the end of its fiscal 2024.
Along with Disney, Apple TV+ launched in November for $4.99 per month. The iPhone giant’s small initial slate is set to grow slowly, with A-list Hollywood stars both in front of and behind the camera. Plus, the streaming market will soon feature Comcast (CMCSA - Free Report) , NBCUniversal’s Peacock, the beefed-up HBO MAX (T - Free Report) , and more.
Netflix executives have said that its long-term business outlook remains unchanged. But Wall Street and investors must see how the firm is able to adapt to a much more crowded market against companies with much deeper pockets.
Plus, NFLX will see three of its most-watched shows—The Office, Friends, and Parks and Recreation—all leave its crowded U.S. library over the next few years for soon-to-be-rival platforms. It is important to note that The Office is Netflix’s No. 1 show, while library programming accounted for 72% of total viewing minutes last year, according to Nielsen data.
Unlike the streaming music market, the TV and movie space must offer different options in order to stand out. This is why Netflix has spent and will continue to send billions of dollars on its own original content and it has taken on debt in order to fund it. However, despite some award buzz, some could argue that Netflix’s original offerings are underwhelming.
Netflix projects it will have a negative cash flow of –$3.5 billion in fiscal 2019. And Netflix’s near-term plan is to “continue to use the high yield market in the interim to finance our investment needs.”
NFLX currently holds “F” grades for both Value and Momentum in our Style Scores system. NFLX is trading at 60.1X forward 12-month earnings, which marks a solid discount against its two-year median. In terms of forward sales, the streaming company’s stock is trading at 5.9X, below its two-year median of 7.3X.
Over the last year, Disney stock has climbed 29%, with Netflix down 2%. The streaming giant has made a comeback in the last three months, up 17% and is trading above both its 50 and 200-day moving averages. NFLX rests about 14% below its 52-week highs, which could give the stock room to run heading into its report.
Looking ahead, our Zacks Consensus Estimates call for Netflix’s Q4 revenue to climb 30% to $5.44 billion. Overall, Netflix’s full-year fiscal 2019 revenue is set to pop roughly 27.5% to $20.13 billion. Then the firm’s 2020 sales are projected to climb roughly 22% higher to reach $24.53 billion.
These would both represent far slower expansions than 2018’s 35%, 2017’s 32.4%, and 2016’s 30.3%, which likely scares some investors at a time of increased competition.
NFLX’s adjusted Q4 earnings are projected to climb 67% to reach $0.50 per share, with full-year fiscal 2019 earnings expected to climb 24.3%. Peeking ahead, fiscal 2020’s adjusted EPS figure it projected to come in 64% higher.
Netflix is currently a Zack Rank #3 (Hold) that has seen its earnings revisions trend in the wrong direction recently. Some investors might want to take a chance on NFLX stock before the firm reports its Q4 results on Tuesday, January 21 in the hopes that it impresses Wall Street with beats and strong guidance.
Yet, the most prudent course of action for longer-term investors is likely to stay away from NFLX stock for now until a clearer picture comes out in the next few weeks, as Netflix fights off global giants in the streaming space.
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