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Can Netflix still grow?

September 27, 2019

Netflix will reveal its Q3 results on October 16th and most analysts expect disappointments in its subscriber numbers and revenues. Indeed, one investment bank (Credit Suisse) in a note to clients sounded alarm bells on September 25th after slashing its forecasts to a potential “below guidance”.

The bank’s note said: “While July and the first few weeks of August looked like Netflix subscriber growth trends had rebounded from 2Q [with] first time Netflix app downloads globally, the last 3 weeks (through September 16th) have been relatively soft.”

Netflix’s share price has had a roller-coaster period, tumbling in July, falling 4.26 per cent on September 24th to their lowest level since December 2018, although recovering 4 per cent on September 25th as bargain hunters saw an opportunity to buy stock. Another analyst (Pivotal) guided its clients to a target price for Netflix down from $515 to just $350, and while these numbers are just ‘targets’ they demonstrate a lack of optimism. Netflix closed at $264 on September 26th.

The worries are not helped by a softening of subscriber growth, but despite solid critical and viewer success  for titles such as Stranger Things, Ozark, Black Mirror and others, and a commitment to spend billions on new content, the fact remains that OTT streaming is becoming ever-more expensive.

The newcomers of Disney, Apple TV and HBO all actively expanding their online activity, as well as heavyweight spending by Amazon Studios, will only exacerbate the challenges. Add in a tough sales environment, not least in India where seemingly the Netflix offering has failed to resonate with subscribers.

Netflix is also hamstrung by an enormous debt-burden. At the end of December 2018 its debt was a thumping $14.8 billion. But it also had a further $19.3 billion in future obligations to content producers and rights owners.

The competition for on-screen talent, as well as buying in new ideas and programme-makers, will cost all of the OTT players more cash. Indeed, Netflix CEO Reed Hastings has said that Apple’s and Disney’s entry into the OTT market will further inflate industry spending on content, making its dizzying $113 million investment in The Crown ‘look like a bargain’.

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