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Netflix to Miss Q3 Guidance of 7 Million New Subscribers, Says Research Firm Exec

Last Updated September 23, 2020 1:09 PM
Kiril Nikolaev
Last Updated September 23, 2020 1:09 PM

Netflix (NFLX) has been showing signs of life over the last few weeks.

From a 2019 low of $252.28 in the last week of September, shares of the on-demand video streaming company surged to $282.93 on Friday’s close for a solid 12.5% bounce. The strong move is giving some retail traders a good reason to be bullish on the stock.

NFLX break out of channel
Day trader sees more upside potential for Netflix. | Source: Twitter 

However, one research firm executive believes that the bounce is setting investors up for a selloff. That’s because he believes that the tech company will miss a key figure in its earnings report due to be released this week.

Research Firm Executive: Confluence of Events Suggest Netflix Will Miss the Guide

Netflix will start facing serious competition this quarter. Disney plans to unveil its streaming service, Disney+, on Nov. 19  while Apple will launch its Apple TV Plus Nov. 1 . Thus, Netflix will have to impress investors with a solid Q3 earnings report if the company wants to avoid more selloffs in the coming days.

A key metric that investors are looking at is subscriber growth. The on-demand video streaming company expects an additional 7 million subscribers in the third quarter of this year . A guidance miss would be a signal that Netflix’s dominance is crumbling even before the entry of big competitors.

Unfortunately for the tech company, some big names in the investing business are betting that Q3 subscriber numbers will disappoint. Andrew Freedman , managing director at research firm Hedgeye, believes that Netflix will miss the 7 million new subscribers Q3 guidance. In a tweet, Mr. Freedman revealed his bearish stance on the stock.

Solid turnout for our NFLX short
Research firm executive thinks Netflix looks primed for a short. | Source: Twitter 

In another tweet, the executive clarified that the Q3 guide he’s referring to is the subscriber growth figures.

Andrew Freedman expects a guidance miss
Andrew Freedman expects a guidance miss | Source: Twitter 

UBS and Goldman Sachs Also Betting on a Guidance Miss

Freedman is not alone to project another subscriber growth miss.

For instance, UBS does not see Netflix hitting the 7 million new subscriber goal due to weaker than expected international subscriber growth. The company forecasts an additional 6.2 million new users outside the U.S. but UBS predicts that that number will fall at 5.57 million .

Goldman Sachs is also not too optimistic on Netflix’s Q3 earnings report. The investment bank slashed its NFLX price target from $420 to $360. Heath Terry, an analyst at Goldman Sachs, cited decreased earnings expectations . Goldman also predicts that Netflix will slightly miss the subscriber growth guidance .

In addition, we spoke to Hatem Giab, managing partner at investment management firm Gerber Kawasaki . The executive believes that Neflix’s strong run in terms of subscriber growth is in peril. In an interview with CCN.com, Mr. Giab said,

As streaming matures and more serious competitors come online such as Disney & Apple, it’s going to be tough to maintain Netflix’s impressive subscriber growth seen the last few years. Competition also makes pricing increases less likely as consumers are a lot more sensitive. This may be challenging for a stock that is trading at over a 100 P/E ratio.

However, the investment firm executive thinks that there’s hope for the on-demand video streaming company to maintain its dominance.

Being in Los Angeles, we see the better content creators continue to gravitate towards Netflix because they are given more creative freedom and frankly are better paid, this will ensure they will continue to have edgy and desirable content. They just have to instill more discipline in their spending now that consumers will have more choices and are apt to cancel or switch subscriptions.

The next few days may be tough for Netflix if it misses the target as mentioned above.

Disclaimer: The above should not be considered trading advice from CCN.com.