- Netflix's third-quarter revenue report will be critical for the company to prove to investors that it could disrupt the onslaught of streaming competitors that will flood the space in the coming months.
- The streaming giant has lost more than 20% of its market value since it reported its first decline in US subscribers since 2011 during the second quarter of 2019.
- In the weeks leading to Netflix's third-quarter earnings results, Banks have reduced their price targets in the midst of competing competition and concerns about future subscriber growth.
- Here's why six analysts have picked up the Netflix stock in recent weeks.
- Watch Netflix trading live on Markets Insider.
Netflix releases quarterly earnings Wednesday after the closing time. It will be the company's latest report before the introduction of several new streaming services from companies such as Disney and Apple.
The combination of (1
Netflix shares have lost more than 20% of their value since the second quarter revenue release in mid-July, showing the first US subscriber decline since 2011. Extended sales have erased most of Netflix's gain for the year, leaving the stock only 6% – less than one-third of the return on the S&P 500 during the period.
Investors and analysts are expected to pay particular attention to whether Netflix could hit that forecast of 7 million net subscriber additions in the third quarter in an attempt to bounce off the decline in the second quarter.
A number of Wall Street companies have lowered their price targets over the weeks leading up to Netflix's earnings report. Several analysts reiterated their "buy" valuations on the stock, but also acknowledge the headwinds it may face as the streaming competition intensifies.
Read more : The chief strategist at a $ 1.3 trillion mediation benefits how traders use Roku as a pawn in the Great Stream Wars
The competition for eyeballs has pushed companies to secure premium content and screw up users on original TV series and movies. Netflix plans to spend as much as $ 15 billion on content in 2019 alone, eating at free cash flow and earnings.
The company's costs for balloon content and the impact of new entrants on the growth of subscribers have led analysts to reassess their forecasts and valuations.
Here are six Wall Street companies that have cut their price targets for Netflix in recent weeks, with their reasons explained:
Morgan Stanley: "The market's view of Netflix has not been so cautious in a long time."
Price target: Decreased to $ 400, from $ 450
"The market's view of Netflix has not been so cautious for a long time," analyst Morgan Stanley Benjamin Swinburne said in a note to clients on October 14.
He continued: "The risk is that Netflix lacks content & # 39; franchisees & # 39; to prevent consumers from jumping in and out of service and keeping churn elevated. At the same time, new streaming options on the margin may shave off some rough additions . "
UBS: "We modestly lower our multiples to reflect our more conservative view of an increasingly competitive environment."
Price target: Reduced to $ 370, from $ 420
"We modestly lower our EV / GAAP EBITDA and EV / (FCF-SBC) multiples to reflect our more conservative view of an increasingly competitive environment in the near to medium term, "wrote UBS analyst Eric Sheridan in a note to clients Oct. 9.
He continued: "We see a multi-quarter path back to highlights if the NFLX can successfully navigate a better-than-expected Q3 & # 39; 19."
Goldman Sachs: "We expect 0.7mn domestic and 6.0mn international paid net subscriber fees, modestly under guidance."
Courtesy of Netflix.
Price target: Cut to $ 360, from $ 420
Rating: Buy  "In 3Q we expect 0.7mn domestic and 6.0mn international paid online subscriber add-ons, modest belo w guide, "Goldman Sachs analyst Health Terry wrote in a note to clients October 10.
Terry added: "With nearly 5-year low NFLX trading on an NTM EV / EBITDA basis, reflecting uncertainty about performance and competition, we remain Buy Rank (CL), even though our 12-month Price target goes to $ 360 from $ 420. "
Pivotal Research:" The key to the stock would be for NFLX to do their 3Q subscriber guidance and have affordable 4Q guidance. "
Price target: Cut to $ 350, from $ 515  Rating: Buy
"We will significantly reduce our year-end & # 39; 20 NFLX target price based on substantially higher than expected market content in inflation, "Jeffrey Wlodarczak, an analyst with Pivotal Research Group, said in a note to clients on September 24.
He continued: "We noted that NFLX shares would potentially have problems working prior to the launch of Disney + and Apple TV +, but that the key to the stock would be for NFLX to make their 3Q subscriber guidance and be reasonable 4Q Guide. "
Monness Crespi Hardt:" We're lowering our estimated global streaming subscriber for 2019 to $ 161.9 million from $ 166.4 million. "
Price target: Cut to $ 340, from $ 440
"We are lowering our estimated global streaming subscription for 2019 to 161.9 million from 166.4 million and reducing our 2020 forecast to 185.1 million from 197 million," wrote Monness Crespi Hardt analyst Brian White October 9.
He continued: "As Netflix continues to invest aggressively back in the business with new content, the company's operating margins remain well below the company's long-term operating margin targets at maturity."
Rosenblatt: "We also believe competition will lead to adverse effects on content usage and pricing power, affecting FCF generation and revenue growth."
Price Target: Decreased to $ 265, from $ 330  Rating: Neutral  "We also believe competition will lead to adverse effects on content usage and price power, which will affect FCF generation and revenue growth respectively." Rosenblatt analyst Bernie McTernan wrote in a note to clients Oct. 8.
McTernan added: "While the stock may be attractive if $ 15B was enough to spend on long-term content, we see competition and growth ambitions pushing it higher, making the FCF valuation difficult to justify . "