Wall Street is souring on Netflix ahead of earnings. Here's why 6 firms have cut their price targets in recent weeks. (NFLX)

Business Insider Finance 1 month ago
  • Netflix's third-quarter earnings report is going to be critical for the company to prove to investors it can weather the onslaught of streaming competitors set to 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 up to Netflix's third-quarter earnings results, a slew of Wall Street banks have slashed their price targets amid looming competition and concerns about future subscriber growth. 
  • Here's why six analysts have soured on Netflix's stock in recent weeks. 
  • Watch Netflix trade live on Markets Insider.

Netflix will release quarterly earnings on Wednesday after the closing bell. It will be company's last report before the introduction of several new streaming services from companies like Disney and Apple

The combination of (1) subscriber growth concerns following Netflix's disappointing second-quarter results and (2) the prospect of new platforms crowding the streaming space has weighed on shares in recent months. 

Netflix's stock has lost more than 20% of its value since its second-quarter earnings release in mid-July which showed the first US subscriber decline since 2011. The prolonged sell-off has erased most of Netflix gains for the year, leaving the stock up just 6% — less than one-third the S&P 500's return over the period.

Investors and analysts are expected to pay particularly close attention to whether Netflix could hit it forecast of 7 million net subscriber additions in the third quarter in an effort to bounce from the second-quarter decline. 

A host of Wall Street firms have lowered their price targets in the weeks leading up to Netflix's earnings report. Several of the analysts reiterated their "buy" ratings on the stock, but also acknowledge the headwinds it could face as streaming competition intensifies. 

The contest for eyeballs has pushed companies racing to secure premium content and crank up spending on original TV shows and movies. Netflix plans to spend as much as $15 billion on content in 2019 alone, eating into free cash flow and earnings. 

The company's ballooning content costs and the impact of new entrants on subscriber growth has led analysts to reevaluate their forecasts and valuations.

Here's are six Wall Street firms that have cut their price targets for Netflix over the last several weeks, with their reasoning explained:

Morgan Stanley: "The market's view of Netflix has not been this cautious for some time."

UBS: "We modestly lower our multiples to reflect our more conservative view of an increasingly competitive environment."

Goldman Sachs: "We expect 0.7mn domestic and 6.0mn international paid net subscriber additions, modestly below guidance."

Pivotal Research: "The key for the stock would be for NFLX to make their 3Q subscriber guidance and have reasonable 4Q guidance."

Monness Crespi Hardt: "We are lowering our 2019 paid global streaming subscriber estimate to 161.9 million from 166.4 million."

Rosenblatt: "We also believe competition will lead to adverse impacts on content spend and pricing power, impacting FCF generation and revenue growth."

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