Netflix’s investment in content, technology and distribution in theory should continue to drive subscriber growth above Wall Street expectations both in the U.S. and internationally.
But after Netflix announced their second quarter earnings in July, the stock price crated to the downside more than $35. The reason price fell that much was because total streaming paid net additions came in at 2.7 million, below expectations of 5.06 million analysts expected. Netflix also lost 126,000 domestic paid subscribers versus an expected gain of 309,000.
CEO, Reed Hastings attempted to calm investors down call saying the quarter was just a hiccup due to anticipated strong demand for a host of new original content.
As long as Netflix is spending more than the competition on content, in particular original content, in theory they should continue to have the edge over the competition. On average, Netflix is spending $10 billion / year on original content, while the competition like Disney, Amazon and Apple are spending on avg. $1 billion / year on original content. Which is probably why when it comes to competition from Disney's new Disney+ and Apple's yet-to-debut Apple TV+ streaming service, Netflix says that it doesn't fear the competition.
But Netflix better start putting so respect on the Disney+ service. Disney is forecasting between 60 million and 90 million subscribers to its streaming service within five years. According to a survey by the website Streaming Observer in partnership with data analysis firm Mindnet Analytics, ss much as 14.5% of Netflix's current U.S. subscriber base of 60 million said they are considering canceling the service in order to sign up for Disney+. Subscribers to all of Disney's services would get Disney+, Hulu, a multichannel live-TV service, plus live sports via ESPN+.
Apple's much-anticipated streaming service TV+ will cost just cost just $4.99 per month when it launches on Nov. 1. Because Apple doesn’t have the library of content like the competition, its going to be free for one year to customers who purchase any iPhone, iPad, Mac or Apple TV. But what Apple lacks in content, the make up for it in cash with over $100 billion just sitting in the bank. So don’t be surprised if buy just buys a studio like a Lionsgate, Sony Pictures or MGM Studios in the future in order to compete with Netflix.
Netflix NFLX shares are down 2% in 2019 and have fallen 30% over the last 12 months.
Thus, Netflix will have to continue to roll out hit movies and shows in order to keep and gain users. But analysts and investors are worried Netflix is about to lose three of its most-watched shows, The Office, Friends, and Parks and Recreation, over the next few years. So out of desperation, it outbid Comcast and paid $500 for the streaming rights for Seinfeld that starts in 2021.
And so Netflix’s growing long-term debt continues to grow. Netflix is on pace to have a negative cash flow of –$3.5 billion for fiscal 2019.
According to Barclays, Netflix’s current business model and expected total addressable market until 2026 don’t justify its current valuation. This could bring trouble for its investors.Last quarter, legendary investor George Soros exited Netflix (NFLX). In the first quarter of 2019, NFLX constituted 0.4% of Soros Fund Management’s total portfolio.
NFLX makes up around 29.5% of Barton Investment Management’s total corpus, the second-highest holdings among all institutional holders. The company has been holding NFLX for the last 13 years. However, in the last quarter, it was one of the company’s top sells.
Thus, the chart suggests, there is further downside at least to the weekly demand at $220.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.