Wednesday 18 July 2018 11:49 am

Debate: Given Netflix’s share price dive, should investors be worried about the future of the streaming service?

Given Netflix’s share price dive, should investors be worried about the future of the service?

Yes – Rebecca O'Keeffe is head of investment at Interactive Investor.

Netflix is fundamentally a subscriber stock, and this key metric is showing some worrying signs.

Not only did Netflix significantly miss on its second quarter targets for both its US and international customers, but the company is also forecasting lower growth for the third quarter.

There may be some who argue that one missed quarter is an isolated incident – and it is very true that buying on dips has proved a fantastic strategy for Netflix investors in the past. But the landscape is changing rapidly, and the competition is intensifying.

Major competitors like Amazon, Apple, and Disney are willing and able to throw money into creating a substantial presence in the market.

Netflix is arguably very expensive, with a huge amount of optimism about future subscriber growth already built into the price. This week’s drop may turn out to be a buying opportunity, but in my view it is more likely to be a wake-up call for investors who have chased the price up to a valuation that is potentially unsustainable.

No – Daniel Ives is chief technology officer and head of technology research at GBH Insights.

Netflix’s softer results are just a speed bump. The company has a number of levers, which should fuel the company’s next phase of growth among both US and international consumers.

Our recent survey shows that the average Netflix user watches the streaming service for 10 or more hours per week – nearly double its nearest competitors Amazon and Hulu.

While the landscape for original content has become increasingly competitive, with new entrants entering the market by the day, we believe Netflix remains in a unique position of strength to grow its content and distribution over the next 12 to 18 months.

The holy grail of profitability going forward will be from international customers, as we believe Netflix could reach more than 700m subscribers by 2020.

The company has spent the past two years investing in a global distribution arm and customer base in over 100 countries, and we believe the fruits of this labour will start to be fully realised later this year.

 

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