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Netflix shares drop as analysts downgrade streamer's outlook

By John Ourand

Netflix shares dropped 25% Friday morning following a Q4 earnings report that underscored the amount of competition that exists in the video streaming business. The main competition for Netflix comes from entertainment-related services like Disney+ and HBO Max. But media companies with sports rights increasingly streaming their content as the number of pay TV subscribers continues to shrink.

ON THE WAY DOWN: A bevy of financial analysts downgraded Netflix and the number of new subscribers they expect the video streamer to pick up over the next year. Here’s a roundup from some of the top analysts in the business.

  • Morgan Stanley downgraded Netflix stock, saying that it expects the company to add 12-15 million net additions per year, well down from the 20-25 million net additions it had expected. “If Netflix is decelerating more rapidly than expected, the great streaming re-bundling may need to begin sooner rather than later.”

  • MoffettNathanson lowered Netflix’s stock price target to $375 from $460 and pointed out that the company’s disappointing results came despite an exceptionally strong content slate. “Imagine what will happen when the content slate is not this strong and/or the western hemisphere is not battling a pandemic? Stepping back, we see this Netflix quarter as a worrying datapoint for the rest of the streaming industry.”

  • Barclay’s downgraded Netflix but seemed more positive about the streaming business in the U.S. than others, citing the fact that U.S. consumers historically have paid more for content than consumers in other countries. “U.S. pay TV prices are the highest in the world and as cord cutting accelerates, it shifts buying power from legacy television to streaming services, allowing multiple services to co-exist.”

  • MorningStar cited “saturation in its largest markets [and] strong competition in the regions with the most potential growth” as main reasons for Netflix’s lower subscriber guidance. “We maintain our narrow moat and raise our fair value estimate to $305 from $275 to account for slight stronger margin expansion expectations and faster than previously projected price increases in the U.S.”

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