Sony announced Thursday that it is launching a cloud-based TV service in the early months of 2015, though some beta users will get a preview of it starting this month. Called “PlayStation Vue,” the service will offer both live and on-demand content from the likes of CBS, Fox, Viacom, and NBCUniversal (the parent company of CNBC).
This is yet another threat to Netflix’s market dominance. A month ago, HBO announced it was going to turn its “Go” service into a stand-alone product, making its vast library available to customers independent of a cable subscription.
As for Netflix, the once highest-flying of the highfliers has been anxiously volatile all year. Share prices have seen price swings of more than $120 several times over the course of 2014. Since its September highs, Netflix’s stock has crumbled 22 percent and is barely positive year-to-date.
So should Netflix investors worry?
“I’m concerned about Netflix in general,” said Erin Gibbs, who has $12 billion in assets under advisement for S&P Capital IQ Global Markets . “Netflix is trading at 103 times forward earnings. The significant price drop in mid-October didn’t bring its valuation any closer to rationale levels. In fact, its earnings forecast dropped even more than its price and actually brought Netflix’s price-to-earnings multiple higher.
With increased competition from HBO and now Sony – and with the possibility of future entrants – Gibbs thinks it’s time to rethink Netflix’s growth expectations and valuation multiples. According to data compiled by FactSet, the consensus is for Netflix to earn about $3.63 per share over the next four reported quarters.
“Netflix is still forecasted to attain 40 percent earnings-per-share growth next year and around 25 percent revenue growth,” Gibbs said. “But given the increased costs it has seen in its international expansion – and the overall slowdown of global growth outside the U.S. – these goals may prove to a bit harder to achieve. I think there’s enough risk surrounding Netflix’s growth expectations to warrant a multiple less than peak levels above 100 times forward earnings.”
“I think the expectations are a little too lofty,” Gibbs added. “I’m staying away.”
The technicals are also negative on Netflix, according to the chart work of Mark Newton, chief technical analyst at Greywolf Execution Partners.
“I don’t like Netflix here,” Newton said. “Pullbacks to test this past April’s lows near $300 are a lot more likely than a move to new highs in the near future.”
Shares of Netflix “gapped down” at $430 in mid-October. A “gap down” is when a stock falls on massive selling to well below its previous day’s low, leaving a gap in the chart. In the case of Netflix, its Oct. 15 low was around $430 while its Oct. 16 high was $366.
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After the selloff, Netflix has not been able to gain traction, Newton said. “Bounces have proved lackluster thus far, leaving the stock susceptible to additional weakness down to test this spring’s lows before any meaningful low is at hand.”
The $300 level also figures prominently his longer-term chart of the stock. That’s because it held as resistance in 2011. With shares breaking above that level this year, it offers a compelling support level. And, unless Netflix can somehow break above $430 – roughly where it “gapped down” in October – he expects Netflix to return to its major support level.
“My thinking is it’s going to pullback and likely test the lows near $300,” Newton said.