Netflix risks losing its shine for investors
Netflix's latest subscriber shortfall has Wall Street tempering its opinion on the company.
The Net video service still remains the largest streaming video provider, accounting for 53% of all subscriptions, followed by Amazon (25%), Hulu (13%) and HBO (1%), according to research firm Strategy Analytics.
But the Los Gatos, Calif.-based company has seen a slowing in subscriber growth, the measuring stick by which analysts have based Netflix's potential on.
During the second quarter, Netflix missed its own forecast of 2.5 million new subscribers, adding only 1.7 million with just 160,000 net new subscribers in the U.S. And next quarter promises more of the same, with Netflix forecasting 2.3 million new subscribers during the current July-September quarter, 300,000 coming in the U.S.
Shares of Netflix (NFLX) closed Tuesday at $85.84 down 13% one day after Netflix released those numbers as part of its second quarter earnings report Monday. Shares are down 22% so far this year.
Netflix shares plummet on subscriber misses
These subscriber trends were enough for BMO Capital Markets Analyst Daniel Salmon to drop his price target for Netflix from $115 to $85 in a note to investors Tuesday, citing "challenging near-term visibility on subscriber trends."
But RBC Capital Markets Analyst Mark Mahaney wondered whether there's more going on. "We think it’s hard to rule out market-maturation, competition, and less-than-perfect execution as factors as well," said Mahaney, who decreased his target price from $140 to $130 in a note Tuesday.
Cutting the Cord: A streaming saturation point?
The market is surely maturing, but has it matured? Netflix's penetration among all U.S. monthly streaming video users is at about 68% and is estimated to increase to only 71% by 2018, according to research firm eMarketer. Total Netflix users is expected to grow from 126.9 million this year to 139.4 million in 2018, the research firm estimates. (Note: eMarketer estimates 2.5 users for each paid Netflix account.
"Netflix will face intense competition from other streaming providers and from emerging channels such as live video streaming on social platforms.” said eMarketer analyst Paul Verna in a statement accompanying the report.
With Netflix subscriptions in less than half of U.S. homes, "there is still room to grow from a household perspective," said Neil Doshi, technology research analyst at Mizuho Securities USA, who dropped his price target to $90 from $109. "Some percent won't subscribe," he said, "but then you have others who are probably testing out which service they like."
When it comes to competition, Netflix's biggest rival may be Amazon, which three months ago unbundled its streaming video service from Amazon Prime, allowing subscribers to pay $8.99 monthly for streaming video and downloads. "Amazon is making a much bigger and bolder push into streaming video and unbundling the video service is another way to get access to streaming that could potentially have an impact (on Netflix)," Doshi said.
Comcast X1 deal will make Netflix binges easier
Some advantages for Netflix: upcoming integrated into Comcast's X1 cloud-based TV platform, an exclusive multiyear deal for Disney movies that begins in September and its own original content, which earlier this month earned 54 Primetime Emmy nominations, up from 34 last year.
But investors should be wary, said Doshi, who has a Neutral rating on Netflix shares. "At this point, we feel the risk-reward is balanced," he said. "We wouldn’t be in any hurry to buy the stock or sell the stock."
Follow Mike Snider on Twitter: @MikeSnider