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Netflix Slips As Needham Analyst Cuts Rating, Cautions on Subscriber Losses

Netflix could lose as many as 4 million U.S. subscribers next year, Needham analysts argue, as intensifying competition in online streaming lures customers away from the market leader.

Netflix Inc.  (NFLX) - Get Netflix Inc. Report shares traded lower Tuesday after analysts at Needham & Company cuts their rating on the stock and cautioned on potential subscriber losses for the online streaming group.

Needham analyst Laura Martin lowered her rating on Netflix to "underperform", down from her prior assessment of "hold", noting the stock is a more attractive option at $260 per share. She also cautioned that intensifying competition in the online streaming space could see Netflix losing as many as 4 million of its 60.6 million U.S. subscribers next year in its premium priced tier of between $9 and $16 per month. 

Martin said Netflix would likely need to offer a lower-priced service, alongside its premium product, in order to compete  with newly-launched platforms from Walt Disney Co, Viacom, Comcast and Apple, all of which fall into a net price bracket of between $5 and $7 per month. 

Netflix shares were marked 1.9% lower in early trading Tuesday to  change hands at $296.83 each, a move that would extend the stock's six-month decline to around 15.6%.

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Last month, Disney said "extraordinary demand" for its newly-launched Disney+ streaming platform lifted its early subscriber base past 10 million, while reiterating its goal of between 60 to 90 million global customers by 2024.

That would still fall far short of Netflix's current global base of around 160 million, but Disney's aggressive price point of $6.99 per month, and little financial incentive for customers to remain with a single platform, analysts are expecting significant movement among the competing offerings over the coming years.

In the first three quarters of 2019, the cost of generating subscriber growth has risen significantly, consumers appear more sensitive to price, and Netflix's global net adds are on pace to decline for the first time ever," said KeyBanc Capital analyst Andy Hargreaves in a recent client note. "While absolute growth has remained excellent, these issues suggest increased saturation may be increasing the cost of driving subscriber growth."