While Netflix attempts to squash those scrubbing login passwords for the service from friends and family, it really should be looking over its own shoulders so it doesn’t get squashed by Disney‘s streaming service.
“We see Disney+ as a global predator for Netflix subs, reaching 100 million subs just 16 months after launch. It took Netflix 10 years to reach 100 million subs,” Martin said in a new research note making the rounds on Monday. Netflix ended 2020 with about 210 million paid global subscribers. Martin said the low $6.99 price point for Disney+ — which has racked up more than 100 million subscribers and has a barrage of original content on tap this year — should allow it to make strong inroads into Netflix‘s subscriber base.
Martin told Yahoo Finance Live the combination of new streaming competitors such as Disney+ and ViacomCBS’s Paramount+ and consumers leaving their homes post vaccination could mean limited pricing power for Netflix.
And by extension, a huge dent to the super bullish thesis on Netflix shares.
“If they do raise prices, they will lose subscribers and that by far is the biggest risk to valuation,” Martin added. “They trade at eight times revenue because they have growth credentials, which equates to a 35 times EBITDA multiple. It’s our view if they start losing subscribers, they will lose their growth credentials and be forced to be valued on a EV/EBITDA basis and give the stock 50% downside.”
Thus far, Martin’s counterparts on the Street are staying hopeful the streaming giant could fend off its new rivals and still thrive during the global reopening from the pandemic.
Of the 43 sell-side analysts that cover Netflix, 30 rate the stock the equivalent of a Buy, according to Bloomberg data. The average analyst price target on Netflix shares is $615, or about 21% above current levels.
But cracks in Netflix shares are emerging as investors position for year of slower growth.
Recall in mid-January, Netflix outlined 14.7% growth in global streaming paid memberships. If hit, that would be a sharp deceleration from the year ago first quarter (+22.8%) as the pandemic sent people indoors. It would also mark a slowdown in growth from 21.9% in the fourth quarter of 2020.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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