Netflix Inc (NFLX)

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Netflix Stock Could Take a Hit From Rising Content Costs, Analyst Says
By: Barron's | October 9, 2019

Rosenblatt Securities says Netflix stock is not attractive even after its big decline in recent months.

The streaming giant is slated to report third-quarter results on Oct. 16.

The back story. The year-to-date return on Netflix stock (ticker: NFLX) is roughly flat. That is a large drop given that the company’s shares were up as much as 44% for 2019 in early May.

The stock has also fallen about 27% since the company’s second-quarter subscriber miss on July 17. The streaming giant added 2.8 million net new international subscribers but lost 126,000 U.S. customers in the quarter that ended in June. Wall Street had expected 352,000 domestic and 4.8 million international adds.

Investors are also concerned about new streaming services from Walt Disney (DIS) and Apple (AAPL), which are slated to launch on Nov. 12 and Nov. 1, respectively.

What’s new. Rosenblatt Securities analyst Bernie McTernan reiterated his Neutral rating for Netflix stock on Tuesday.

“With the well-known, unprecedented competition coming, Netflix’s position is shifting from new entrant to incumbent,” he wrote. “We also believe competition will lead to adverse impacts on content spend and pricing power, impacting [free cash flow] generation and revenue growth, respectively.”

Looking ahead. McTernan said content costs will rise because multiple companies with significant resources are trying to acquire the same assets. He expects investors will be more skeptical of Netflix’s upcoming fourth-quarter guidance because Apple TV+ and Disney will not have launched yet.

The analyst lowered his price target for Netflix shares to $265 from $330. Netflix stock was down 1.2% to $267.52 on Wednesday.

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