Could Netflix Stock Drop By 50% In 2019 If Subscriber Loss Trends Continue?

by Trefis Team
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Streaming behemoth Netflix (NASDAQ:NFLX) published its Q2 results late last month, reporting its first loss of U.S. streaming subscribers in almost 8 years on account of its recent price increases. Although the company expects to return to growth, projecting 800k U.S. subscriber adds in Q3, it does face mounting competition, with Disney slated to launch its Disney+ streaming service at a price that is about half of Netflix’s most popular plan, and AT&T poised to launch its HBO Max services. Moreover, a lot of popular content such as “Friends” and “The Office” is expected to leave Netflix shortly.

While we forecast that the company will continue to grow its U.S. user base going forward, it may be worthwhile to examine the potential impact on Netflix stock if its U.S. subscriber base were to decline and its international growth were to slow down. Our base case forecasts are shown in grey and the downside scenario is shown in blue in the following charts.

View our interactive dashboard analysis What’s The Impact On Netflix If It Continues To Shed U.S. Subscribers? 

What’s The Impact On Domestic Streaming Revenue If Netflix Loses 500k U.S. Users In 2020?

Base case:

  • We forecast that Netflix U.S. subscriber base will grow from 63 million in 2019 to 65.5 million in 2020.

Downside scenario:

  • If mounting competition and content losses hurt the company, we estimate that its U.S. base could fall to 62.5 million

What’s The Impact On International Streaming Revenue If Subscriber Growth Slows To 5% In 2020?

Base case:

  • We estimate that international subscribers will grow to 110 million in 2019 and 121 million in 2020, a growth rate of 10%.

Downside scenario:

  • We estimate that the international subscriber base could grow at a slower pace, coming in at 116 million in 2020 (about 5% growth)


Estimating Netflix Total Revenues

  • We estimate that Netflix total revenues will stand at $24 billion in 2020.
  • Under our downside scenario, revenues would stand at around $23 billion.

Estimating Netflix EPS

  •  We estimate that EPS will stand at $5.83 in 2020.
  • Our downside EPS for 2020 stands at about $5.70.

Netflix Stock Could Decline By ~50% Per Our Downside Scenario


Base Case:

  • We value Netflix at a multiple of 65x projected 2020 earnings considering its high earnings growth rates (EPS up 10x in the last 5 years).

Downside Case:

  • If we assign as 35x multiple to Netflix on account of its slower growth, our price estimate would stand at about $200 per share.
  • While the assumed decline in the multiple is sizable (-45%), and larger than the 35% drop the company saw in 2011 following the fall-out from its price increase and decision to split its streaming and DVD business, we believe that such a correction could be possible if the company posts slower growth for consecutive quarters, implying that this could be a secular trend.


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