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The results will give Wall Street its first glimpse into how many subscribers may be leaving Netflix in favor of Disney’s competitor.
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“The stock’s climbed the wall of worry since the Disney+ launch (peak worry) with the next test coming in 2Q20 (Disney+ W Europe; Peacock, HBO Max in USA),” SunTrust Robinson Humphrey analyst Matthew Thornton wrote in a note sent to clients on Friday.
Thornton says that a “robust” content slate, led by “new series (e.g. The Witcher), returning series (e.g. The Crown, You), and the film slate (e.g. El Camino, The Irishman, 6 Underground)” will drive new domestic subscriptions slightly ahead of the 600,000 additions that Wall Street is expecting and that new international subscribers will be in-line with the 7 million expectation. Analysts believe Netflix will report adjusted fourth-quarter earnings of 52 cents a share on revenue of $5.45 billion, according to Refinitiv.
Thornton, who has a "buy" rating and $402 price target, concedes that Disney+ impacted app downloads and daily active user numbers, and admits risk to his forecast is to the downside due to the “likelihood of some elevated churn” in markets where the rival streaming service launched. Last month, analysts at the Zurich-based investment bank Credit Suisse estimated that the Disney+ service could have 20 million subscribers by the end of 2020.
Netflix shares have rallied 15.5 percent since Disney+ launched on Nov. 12, and Tuesday’s results, due out after the closing bell, could help the market justify those gains.
Wedbush Securities analyst Michael Pachter, who has an “underperform” rating and $188 price target, warns the launch of Disney+ and the impending loss of most Disney and Fox content could result in the disappearance of 25 percent of total viewing hours.
Pachter says Comcast, Fox, Disney and Warner Bros. accounted for roughly 60-65 percent of Netflix viewing hours in 2019, and predicts most of that content will “migrate away” over the next several years, triggering domestic subscriber losses.
He predicts Netflix will only be partially successful in its efforts to replace that content with originals and says Netflix will have to continue to “increase its marketing and content spending over the next several years in order to maintain the pace of its subscriber growth.”
Pachter believes Netflix, for the time being, will “pay whatever it takes to attract high quality content” and that its competition will be “slow to gain scale,” meaning that the status quo will be maintained through 2021.
Analysts are mostly bullish on Netflix, with 27 of 44 surveyed by Refinitiv saying “buy” while just six recommended “sell.”
Shares have climbed 5 percent so far this year, outperforming the S&P 500’s 3.1 percent gain.
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