Can Netflix get its mojo back?
TheStreet will be live blogging Netflix's earnings after the close on Tuesday. Please check our home page then for more details.
The forecast is mixed. The streaming giant's stock has been in a relative slump since its July earnings, which revealed new subscriber growth that fell short of Wall Street's expectations. Investors were unforgiving of that missed target and the stock never fully recovered: shares are trading more than 15% lower than they were prior to the July report.
On Monday, two analysts also slashed their 12-month price targets for the stock with both Goldman Sachs and Raymond James analysts citing rising interest rates as a factor that could lead to slower growth in Netflix's valuation. Amid a broader market selloff last week partially blamed on interest rates, shares of Netflix dipped about 6%.
In a note to clients, Goldman Sachs' Heath Terry pointed out positive catalysts for the stock but lowered the bank's price target from $470 to $430 "to reflect the contraction in broader internet multiples," suggesting that rising rates are "have been more important factors for stock price performance."
As investors take a microscope to Netflix's quarterly performance on Tuesday, subscriber growth, international expansion and spending are several issues likely to come into sharp focus. In July, Netflix guided for 5 million net subscriber adds in Q3, amounting to 650,000 in the U.S. and 4.35 million in international markets. New subscribers in international markets is of particular interest as its U.S. subscriber growth has tapered off relative to other markets.
As pointed out by Nomura's Mark Kelley, the competitive landscape for Netflix is one of the biggest overarching questions surrounding the stock. Competitors including AT&T (T) , Apple (AAPL) , Walmart (WMT) and even Costco (COST) are preparing to enter the video streaming fray, which could wind up jacking up the cost of acquiring or producing original content. "While these services offer varying levels of direct threats to Netflix's subscriber base, they indicate that the arms race for content is not likely to ease any time soon," Kelley wrote.
It isn't all doom and gloom, however.
Netflix's subscriber miss last quarter was pinned in part on weak original offerings during Q2, but a stronger slate of content released last quarter may have likewise driven more subscribers to Netflix last quarter.
"We note that the content slate that came online during 3Q was better than 2Q's, including new seasons of big-name series such as Orange is the New Black, Ozark, and BoJack Horseman, which gives us increased confidence that the company can achieve its 3Q subscriber guidance," Kelley added. "Furthermore, the most recent Sensor Tower app download data indicated strong international growth, with India being the fastest growing region globally."
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