For Netflix (NFLX), a key reason for developing its own original content is to lower its long-term costs. Just recently the company released a film called Bird Box, starring Sandra Bullock, which Netflix says had 45 million viewers with eyes on it, 26 million estimated to be from the U.S. While it seems that the subscriber-based company is churning out the content, Wedbush analyst Michael Pachter says otherwise. The bearish analyst foresees content spending to trigger a substantial cash burn for years to come.
Pachter reiterates an Underperform rating with a price target of $150, less than half of the current share price — showing a 55% potential decrease. (To watch Pachter’s track record, click here)
“Disney and Fox are expected to migrate content currently licensed to Netflix to a Disney standalone service by the end of this year. Because Netflix will have less content available to it, its cash burn is likely to stabilize or improve; unfortunately, this subjects the company to the potential for slowing subscriber growth should its original content offering fail to achieve the quality and quantity of the lost content. We expect Netflix to guide to flattish (negative $3 billion) cash burn for 2019 due to the likely lack of available content,” Pachter explains.
As far as the film goes – Pachter shares his opinion on the viewership of Bird Box and what it means to the company: “We think that the unusually high activity depressed churn, leading to upside to both domestic and international subscriber additions, and we think that our consensus Q4 subscriber estimates may prove to be conservative. We expect Netflix to highlight the success of Bird Box as a subscriber driver on its call.”
When it comes to the Q4 numbers — the analyst notes his estimates ahead of the call are above guidance in terms of revenue, EPS and subscriptions. Pachter expects $4,225 million in revenue, $0.30 EPS, 1.70 million domestic and 6.10 million in international paid streaming subscriptions whereas guidance came in at $4,199, EPS of $0.23, 1.50 million domestic subscribers and global subscription numbers in line with Pachter’s.
While Pachter is ardently against buying Netflix stock, not all of Wall Street is in agreement. Out of 35 analysts, 25 are bullish, 8 sidelined and 2 bearish (included Pachter). The consensus price target of $386.82 shows just about 17% upside from where the stock is currently selling. (See NFLX’s price targets and analyst ratings on TipRanks)