Netflix share price forecast for 2020 and beyond
After a bumpy couple of years on the stock market, with mixed financial results, the arrival of new competitors is weighing on the Netflix share price forecast
With big-name competitors throwing billions of dollars at new streaming services – splitting the loyalties of once-devoted customers – the Netflix share price forecast isn’t as rosy as the sprawling entertainment company might hope.
Heavy investment in original programming and eye-wateringly large deals with Jerry Seinfeld, Ricky Gervais and the Obamas haven’t been enough to aid Netflix stock performance. The company has struggled to maintain a breakneck speed of growth – missing subscriber targets in the US for two consecutive quarters during 2019. As a result, some analysts are also concerned that a significant chunk of this year’s $15bn splurge (£11bn, €13.5bn) on content is being funded by debt. The latest figures show Netflix’s long-term debt now stands at $12.43bn – almost treble what it was back in 2017.
So… with Disney, Apple, Amazon and countless others vying to wrestle market share from the internet giant, which has come a long way from its humble beginnings as a DVD rental service in 1997, is the Netflix stock forecast a must-watch or a switch off?
What Netflix is worth
Before we delve into a Netflix stock price analysis, let’s look at its market capitalisation. Back in the summer of 2018, Netflix was riding at an all-time high of $182bn – leapfrogging Disney to become the world’s most valuable entertainment company. As of December 2019, there has been a dramatic reversal: Netflix’s market cap has slumped to $132.7bn, while Disney is worth almost twice as much as this.
Netflix’s Q3 earnings report really was a mixed bag for investors. Earnings per share stood at $1.47, much higher than the $1.04 forecast by Refinitiv. Revenue for the quarter was largely in line with expectations at $5.24bn, but the company added just 517,000 paying subscribers in the US – almost 300,000 less than what analysts predicted. This was offset slightly by better-than-expected growth in international subscriber numbers. Net income of $665 million impressed the markets, and Netflix share price history shows they rose by 8 per cent in after-hours trading.
The business model
As well as producing exclusive TV shows and movies that encourage consumers to take up monthly subscriptions, Netflix also hosts content from traditional broadcasters and film production companies. Subscriptions generally fall into three tiers. While the cheapest plans offer standard definition streaming on one device, the most expensive, family-minded plan allows four devices to access content simultaneously with 4K quality.
It’s surprising to note that Netflix still allows American viewers to rent DVDs and Blu-rays – and that it continues to deliver a not insubstantial chunk of business. The company had almost 2.3 million paid memberships for this service in Q3 2019, generating revenue of $71.8m. It may be a drop in the bucket compared with the bigger picture, but it illustrates that not everyone can – or wants to – jump on the streaming bandwagon just yet.
Netflix share price history
When it comes to Netflix stock price analysis, the company has come a long way since its IPO in 2002, when 5.5 million shares of common stock were sold at $15 apiece. If you had bought 10 shares for $150 at the time, you would now have 140 shares as a result of two stock splits that took place in 2004 and 2015. At the time of writing, they would be worth a total of $42,560 – an increase on the initial investment amount of 28,273 per cent.
Most of the strong Netflix stock performance can be attributed to the past five years, as the company gained a head start in video on demand services. The share price stood at about $50 in January 2015, steadily growing to $200 by the start of 2018. In the six months that followed, they doubled in value and hit highs beyond $400 – and at the time, they were the second-best performer in the S&P 500.
This wasn’t to last. Netflix share price news was grim reading for rest of 2018. A cocktail of increased borrowing costs, rumours about new competitors and squeezed margins when entering lower-cost markets all contributed to a slump of about 40 per cent by Christmas.
Netflix stock did bounce back in the first half of 2019, rising by more than 46 per cent, but these gains have since been erased. Compared with other members of the “FAANG” group – which also include Facebook, Apple, Amazon and Google – Netflix has been the worst performer this year.
Netflix share price forecast for 2020
Missed subscriber targets in 2019 have led to negative Netflix stock predictions for next year. In the aftermath of the company’s Q3 results, eMarketer analyst Eric Haggstrom said: “The fact that Netflix has shown disappointing growth without the new competition present, is a negative omen for Netflix in 2020 and beyond.”
According to CNN Business, 38 analysts have provided a median 12-month forecast of $397.50 for Netflix stock, with lows of $188 and highs of $446.
Analysts say they are worried about how the arrival of Apple and Disney will affect already problematic levels of subscriber growth, and whether Netflix will be able to slowly reduce levels of cash burn. Some also predict that the company could begin seeking out new revenue streams – potentially in the form of product placement.
Growth factors and potential disruptors
Hit TV could help Netflix reduce subscriber churn and entice new viewers – and increasing investment in non-English language content could deliver impressive growth in major markets such as Brazil and India. The company is also continuing to secure partnerships with telecoms companies internationally, meaning Netflix is offered in bundles alongside mobile phone contracts and satellite TV packages. One of the company’s biggest strengths has been its determination to spend heavily on a varied range of content, appealing to a broader cross-section of viewers.
In its Q3 earnings report, Netflix said it doesn’t regard the likes of Amazon Prime, YouTube, HBO Max, Apple TV+ and Disney+ as its main competitors given how linear TV continues to dominate screen time in most markets. Although this means there is plenty of untapped potential, the company acknowledges “there may be some modest headwind to near-term growth”.
Risks do lie ahead for Netflix. The company is going to face a battle for subscribers as few consumers are going to sign up for multiple streaming platforms. There is a real danger of a race to the bottom as pricing points become more competitive, too. Netflix’s library of content is thinning as the likes of Disney take shows off its platform to launch their own services – and buying the rights to replacement content can be expensive (a five-year deal for Seinfeld, one of the world’s most popular sitcoms, cost Netflix $500m).
While there is scope for optimism in the Netflix stock performance – given its dominant position in the market, with more than 158 million subscribers as of Q3 – expect turbulence as the streaming sector heats up in 2020.
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