Netflix just had its best quarter for content — but it still faces several big risks, JPMorgan says

Ken Ishii/ Getty ImagesNetflix CEO Reed Hastings
  • Netflix‘s quarterly results are due out later this week, and JPMorgan views the streaming giant pretty positively.
  • But in a new report out Monday, the firm lowered its year-end price target and listed several risks Netflix may still have to grapple with.
  • Two fourth-quarter-specific risks are the impact from foreign-exchange fluctuations and the addition of fewer net additions than Netflix had previously forecast.
  • Netflix shares have fallen 21% from their record high last June, but they’re still up 50% in one year.
  • Watch Netflix trade live.

JPMorgan analysts are pretty optimistic on Netflix in the long-run. They like its program offerings, its growth both in the US and internationally, and its key position as a beneficiary of television disruption. The firm even thinks this last quarter was its best for content.

But in a note sent to clients Monday, JPMorgan adjusted its outlook ahead of Thursday’s fourth-quarter earnings report. The bank trimmed its year-end price target on the stock, lowered their fourth-quarter revenue and operating income estimates, and detailed several key risks surrounding the streaming giant.

“While we are more focused on total net adds in 4Q, we lowered our 4Q paid net adds estimates and are now modestly below [management’s] guide due to a back-end loaded content schedule with ‘Bird Box’ released on 12/21 and ‘Black Mirror: Bandersnatch’ on 12/28,” analysts led by Doug Anmuth told clients Monday.

Anmuth and his team added that splashy titles like those, and others like “The Haunting of Hill House” and “Narcos: Mexico,” lead them to believe the fourth-quarter was the strongest content quarter ever. They highlight, specifically, Google Trends showing “Bird Box” became the second-most-searched Netflix original title behind “Stranger Things.”


Read more:


Morgan Stanley predicts when Netflix will stop burning money and start generating billions in free cash flow

Still, a main driver for their tempered outlook is foreign-exchange fluctuations. A strong US dollar relative to foreign currencies in the fourth-quarter likely impacted their sales and operating income, JPMorgan said. The upcoming report comes on the heels of a brutal few months for the market more broadly, with Wall Street expecting a slowdown in earnings growth.

Here’s a breakdown of some of the other central risks facing Netflix ahead of its Q4 results, and in the long-term, according to the analysts.

  • Fewer paid net additions. The firm lowered its fourth-quarter paid net additions to 1.28 million for the US and 5.97 million internationally, versus the company’s guidance of 1.5 million and 6.1 million, respectively. This was mostly driven by a content slate that ramped up late in the quarter.
  • Cash burn. Netflix’s stock could underperform if the company’s widely noted free-cash-flow burn is “greater than expected.” Netflix said in October that its negative free-cash-flow burn reached $US3 billion in 2018, up from $US2 billion the year before.
  • Competition. Shares could also underperform if increased competition from Amazon, Disney, Hulu, and AT&T impact Netflix’s net additions.

Now read:

Netflix shares.Markets InsiderNetflix shares.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.