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With the coming loss of the most popular show on its platform, Netflix needs to show Wall Street it has a content pipeline to keep growing subscribers and satisfy current ones. While analysts are nowhere near throwing in the towel on one of their favorite stocks, many are starting to show concern.
"The Office" will be removed from Netflix by NBC in 2021. The streaming video giant was willing to offer NBC as much as $90 million a year for the rights to continue airing "The Office" but NBC rejected the offer.
"While NFLX retains rights through January 2021, it is nevertheless a blow to lose one of it most watched shows," Baird analyst William Power said in a recent note to investors.
Netflix stock has traded down 5% over the past 12 months, lagging behind its technology giant peers and the broader stock market. After a fourth-quarter slide, the stock has rocketed back by 41% this year, but still hasn't been able to overtake the market over the last full year.
Most of the 2019 gains are from a big pop in January. Since then, the stock has faltered. While concerned, Wall Street is sticking by the stock. Thirty-eight of the 40 analysts covering the company have either buy or hold ratings on Netflix shares, according to FactSet.
Stifel analyst Scott Devitt explained that the recent pause in the rally is the result of uncertainty around the company, both in the competitive streaming landscape and Netflix's content production.
Devitt expects to stick by his buy rating unless the head start Netflix has in streaming begins to erode. "The battle is really in international" markets, Devitt said, as the media content market in "the U.S. is maturing and getting more competitive."
As Netflix is pouring investment into creating its own content, big media conglomerates like Disney and Comcast are starting their own streaming services and buying back content. But neither of these models are certain, in Devitt's view.
"Can these other services, that are potential competitors for Netflix, make the economics work where they get paid for their own content? Five years ago that wasn't the case," Devitt said. "It's a relevant topic – it's not to be swept under the rug – but it's hard to know whether it's that much of a problem for Netflix."
It's little wonder why Netflix continues to be beloved by investors and analysts, as the stock has climbed nearly 475% in the past five years.
Nomura Instinet analyst Mark Kelly told CNBC that he wouldn't necessarily call the loss of "The Office" a top for the stock. Instead, he said it's more like a plateau, with Netflix investors "on the sidelines given new entrants." Kelley said competitors could do one of three things: "Take away engagement," "make content more expensive," "or diminish the price power Netflix has exhibited for several years."
"The fact that the stock is basically sideways for the last 6 months tells me there is no clear view on any of those factors," Kelley said.
"The Office" may be one of a number of rerun shows that Netflix loses from its library. Baird pointed to recent speculation that Netflix could also lose "Friends," which is believed to be the other most watched show on the platform besides "the Office."
"While we have been positive on Netflix's growth, we have been concerned that upcoming streaming offers from Disney, Apple, NBCU and WarnerMedia could reduce Netflix's ability to continue to grow its share of overall viewership, " Baird said.
Recent data from PricewaterhouseCoopers (PWC) gives further insight into the importance of shows licensed but not wholly-owned by Netflix. Despite "about 90% of new investment" from Netflix going into original programming, PWC said in a June 6 report that 80% of content viewed on Netflix in the U.S. is licensed. This makes "it increasingly important for the platform to keep hold of key titles, while it works to draw viewers towards original content," PWC said.
Netflix is also set to surpass Comcast's NBCUniversal this year in spending on content, according to PWC, with Netflix spending as much as $13 billion compared to NBC's $10 billion.
"Original programming spend increasing without matching the early success of some of its hit shows" remains a major downside risk to Netflix, analysts at MoffettNathanson said in a note on Thursday.
The company faces a time crunch. With Netflix appearing to approach "its peak subscriber point in the U.S.," according to PWC, the company will have to reduce its spending on licensed programming and increasing the strength of its original offering.
And as Netflix burns cash to grow, keeping that subscriber growth going "is critical to its ability to raise prices long term," Baird said.
In addition to growing U.S. competition, research firm MoffettNathanson also added international markets as another risk to Netflix. The firm said Netflix has not been able to monetize international viewers as effectively as U.S. viewers, a gap that MoffettNathanson expects "will continue to widen."
"We worry that longer-term estimates that show a narrowing of international [versus domestic] revenue per user will be overly simplistic and ultimately wrong," MoffettNathanson said.
There were no Netflix rating changes by Wall Street after "The Office" announcement and the platform remains the most popular streaming service in the world. But – if the company doesn't simultaneously fend off competition while building demand for its own content – analysts are beginning to warn that that Netflix's stock may slow, or even reverse, its rapid climb.
– CNBC's Michael Bloom contributed to this report.
Disclosure: NBCUniversal is the parent company of CNBC.