Netflix could lose 4 million US subscribers in 2020, says analyst

Netflix’s strategy of “leveraging its balance sheet to pay for content” is “a recipe for disaster”, an industry analyst has said.

The comments from Joule Financial’s chief investment officer Quint Tatro were made to CNBC after Needham analyst Laura Martin predicted that Netflix risks losing 4 million US subscribers in 2020. With Disney+, Apple TV+, Hulu, CBS All Access and the upcoming Peacock all costing between US$5-7 per month, Martin said that Netflix’s current tiers of US$9-16 per month are “unsustainable.”

Martin also said that the price-to-value ratio for customers will decrease significantly when it loses popular shows like Friends and The Office. The streamer has spent US$50 million to acquire the rights to iconic series Seinfeld, but a recent report from Parrot Analytics claims the Larry David-helmed series “lacks longevity”.

The analyst also went on to say that Netflix’s ongoing refusal to house advertising would lead to subscription losses. Needham downgraded Netflix’s stock to “underperform” from “hold” as a result. 

While 4 million subscribers from the global total of just under 160 million would be a relatively small amount, Needham said that US subscribers generate nearly three times more profit contribution than international subscribers. This would amount to a US$260 million loss. 

The damning report saw Netflix shares sink by 3% on Tuesday, adding to an already significant decline of 7% since the start of December. The figures are even more concerning when considering Netflix’s stellar month of Golden Globe domination, and positive performance for Martin Scorsese’s The Irishman – which saw 26 million streams in its first week. 

In light of that analysis, Tatro said that he agreed with the downgrade. He said: “While I have no idea what subscribers will drop off, my concern is the valuation, and I think that investors are waking up to the fact that this company is not nearly going to grow as fast as the earnings are projecting.”

He also predicted that the next quarter will see “stagnant to low earnings growth,” and that investors “will not be willing to pay for growth at these multiples.”

Speaking on the same broadcast, Miller Tabak chief market strategist Matt Maley agreed that the performance poses “some real problems” and that “things better turn around for Netflix next year or the momentum issues are going to catch up to them.”

While the company is yet to alter its US pricing strategy, it is in the process of shaking things up in India. 

Following the launch of a RS199 (€2.59) per month mobile-only plan in the country earlier this year, the streamer will also offer three-, six- and 12-month plans at discounts of up to 50% Reuters has reported. Three-month plans will be offered at a 20% discount, while six-month plans will receive a 30% discount. 

A spokesperson said that it believes its members “may value the flexibility that comes from being able to pay for a few months at once.”

While its mobile only plan is a competitive price, it has since been undercut by Apple which offers Apple TV+ in India at RS99 (€1.25) per month.