If a company’s share price is indicative of its position in the market, then Netflix is in trouble.
The share price of Netflix has dropped substantially in recent weeks, driven by a negative outlook from analysts.
In July 2019, Netflix was sitting at over $380 per share. Fast forward to today, and the share price is down to under $255 – this is a 30% drop since June.
This puts the company on track for its biggest quarterly decline in seven years.
The share price graph below shows the decline in the past three months. Click the graph to enlarge it.
The reason for this downward trend is a negative outlook from industry players and investment analysts.
Analysts are predicting strong competition from Disney+, Disney’s streaming service.
The Disney streaming service will offer series and movies from the Disney, Star Wars, and Marvel universes, and will start at $6.99. It will also include content from Pixar and National Geographic.
Even more appealing is the Disney+ bundle deal for $12.99 per month, which includes a subscription to Disney+, Hulu, and ESPN+. This is set to launch in the US in November.
Adding to Netflix’s competition is the new streaming service launched by Apple in September, called Apple TV+.
Bank of America Merrill Lynch analysts stated that Netflix has a huge content advantage over Apple TV+, however, and that Apple’s streaming service in its current format is not likely to disrupt Netflix.
Another reason for the negative outlook on Netflix is the huge amount of money it spends on producing content.
“Our new forecasts imply they are going to respond to content cost acceleration by revving up their own content spend that will allow them to maintain their subscriber growth while pushing back profitability materially,” Pivotal analyst Jeffrey Wlodarczak said in a note on Netflix.
Netflix has also spent substantial amounts of money on acquiring content, as evidenced in its recent acquisition of the global streaming rights for Seinfeld.
The details of the purchase were not disclosed, but it has been reported that Netflix paid well over $500 million.
The cost-intensive nature of its content production and acquisition has seen Netflix take out substantial long-term debt, and in April its debt stood at $12.3 billion (R183 billion).
KeyBanc Capital Markets also warned that “weak results” in Netflix’s Q3 report could affect the market’s view of the company’s long-term growth.
Only a “very significant upside” in Q3 is likely to “drive sustainable upside in the shares”, said the organisation.