Netflix shares start to fade on fears of slowing subscriber growth

Key Points
  • Shares of Netflix initially rose Thursday after it reported an earnings beat and rising international subscriber adds in the third quarter. 
  • The stock pared some of its gains as it appeared investors may be reassessing their views around slowing subscriber growth. 
  • Analysts said they feared Netflix would have to slash prices to keep subscribers from fleeing to rival streaming services. 
Netflix shares start to fade after earnings—Four experts on what's next for the stock

Shares of Netflix popped as much as 9% in early trading on Thursday following the company's third-quarter earnings report, but the stock pared some of its gains as it appeared some investors may be reassessing their views around slowing subscriber growth. Netflix's stock was up 2.4% by market close on Thursday. 

The company reported mixed results for the third quarter, with an earnings beat and a miss on domestic subscriber adds, despite international subscriber adds returning to growth. Netflix also said it expects to add fewer subscribers in the fourth quarter than it added one year ago.

While some analysts cheered Netflix's optimism around the intensifying streaming wars, others were not as bullish, citing concerns around price elasticity, subscriber churn and a weaker content slate.

Needham analysts projected the company could lose up to 10 million of its roughly 60 million U.S. subscribers in 2020 if it doesn't lower monthly subscription prices. Netflix charges $12.99 for its popular HD streaming plan, while new services from Apple and Disney are expected to be much cheaper.

"For the past 5 years, Netflix has competed with linear TV bundles at one-fifth the price, but going forward it must compete with 'free' as Apple and Amazon bundle their SVOD services into their core products and Disney+ pricing is ½ Netflix's," Needham analyst Laura Martin wrote in a note to clients.

As new services are set to launch, Netflix is also slated to lose several popular shows, including "The Office" and "Friends" in the next two years. The company has tried to shore up those losses by snagging the rights to "Seinfeld" and doubling down on original shows, but that strategy leaves it with a "steep uphill climb," Wedbush analysts said.

"We estimate that by the end of 2021 Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBCUniversal, and we think its efforts to replace that content with originals will only partially succeed," Wedbush analyst Michael Pachter said in a note to clients.

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