One of Netflix's Biggest Bulls Stands by His Call Despite Growing Competition

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A long-time Netflix (NFLX) - Get Report bull has outlined his latest case for the beaten-down stock, as the company faces competition from majornew rivals and high-flying growth stocks fall out of favor.

Netflix shares are flat for 2019 and down 30% to $267 from their 2019 high of $381. In the second quarter, the streaming giant added just 2.7 million global net subscriber against Wall Street's estimates of 5 million. But RBC Capital Markets analyst Mark Mahaney thinks Netflix's third quarter earnings report should be decent and longer term has a one-year price target on Netflix of $450, representing 68% upside.

Here are Mahaney's main arguments for Netflix, which he discussed this week with TheStreet's tech stocks editor Nelson Wang:

  • There are now low expectations for Netflix's current quarter to be reported Oct. 16. Analysts polled by FactSet are looking for third quarter total net paid subscriber additions of 6.836 million. Mahaney thinks Netflix can beat that number.
  • Fears of competition from the likes of Apple's (AAPL) - Get Report Apple TV+, Disney's (DIS) - Get Report Disney+, Amazon's (AMZN) - Get Report video services and Comcast (CMCSA) - Get Report are "overblown."
  • Users will be able to subscribe to Netflix, Apple TV+ and Disney+ for just $21 a month, as Apple and Disney have both priced their offerings very low. About 66% of users in a survey done by RBC said they're interested in subscribing to more than one streaming services.
  • Since each service features original content, video streaming isn't like music streaming, in which each player has essentially the same music. "If you want Stranger Things, there's only place to get that," Mahaney said. For that reason, Mahaney says these streaming services are complementary in some ways, rather than being substitutes for one another.  

This last point echoes what Stifel analyst Scott Devitt wrote in a late September note. "We expect the scale and breadth of Netflix's series and film library will remain highly attractive for subscribers in a world where the consumer can effectively rebundle the cable package with two or more SVOD subscriptions (ex-sports)," Devitt wrote.

But Zev Fima, analyst for Jim Cramer's Action Alerts Plus portfolio, notes that that while much of Netflix's subscriber growth expectations reflect high international growth rates, a lot of the new streaming players are moving into that space. And countering Mahaney's point of the multiple service subscriber, "I don't think it's an issue of people cutting Netflix to add services, but I think at some point, they'll look to trim those services, and at that point, Netflix isn't going to make the cut when they only want to keep two or three services," Fima said. 

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