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No Chill: Macquarie Downgrades Netflix To Underperform, Sees 73 Million Intl. Subs By 2019

The near-term prospects for Netflix, Inc. NFLX appear challenged by high content costs and intensifying competition in the US and other countries, Macquarie’s Tim Nollen said in a report. He downgraded the rating on the company from Neutral to Underperform, while maintaining a price target of $85.

International Expansion

Netflix has expanded its services into several countries. Nollen expressed concern regarding the company’s pricing and lack of compelling content. He believes Netflix would not be able to meet the consensus expectation for international subscribers, and estimated the figure at 73 million by 2019.

“We believe success will require partnering with local content providers and/or investing in more local content, or in content that will travel,” Nollen mentioned. He pointed out, however, that this could be an expensive initiative for Netflix, with its total content obligations already having soared to $16-$18 billion. The EPS estimate for 2017 has been reduced from $0.85 to $0.74.

Scenario At Home

Netflix could face increased competition in the US from Amazon.com, Inc. AMZN, which is doubling its content spending this year, as well as a number of other OTT options expected to be available “from HBO Now to skinny bundles to virtual MVPDs like Hulu Plus,” the analyst stated, adding, “These will all compete for producers’ content and consumers’ time.”

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DateFirmActionFromTo
Sep 2016MacquarieDowngradesNeutralUnderperform
Aug 2016Axiom CapitalInitiates Coverage onSell
Aug 2016William BlairUpgradesMarket PerformMarket Outperform

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