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Jan. 21, 2020, 2:46 p.m. EST

Netflix earnings should show fallout from new streaming rivals, preparations for more

After rough year for Netflix stock amid wave of new competition, analysts suggest fourth-quarter results could lead to rebound

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By Jon Swartz


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Netflix production “The Irishman,” directed by Martin Scorsese, is nominated for a best picture Oscar.

Netflix Inc. endured the first wave of a competitive assault late last year, and financial results coming Tuesday will show how it was affected, and what it expects as it braces for a second wave in the spring.

Whether the November debuts of inexpensive streaming services from Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.06%  and Walt Disney Co. /zigman2/quotes/203410047/composite DIS -0.33%  chipped away at Netflix’s /zigman2/quotes/202353025/composite NFLX -0.72%  market leadership is the most pressing issue when it reports fiscal fourth-quarter results after the markets close Tuesday.

The road isn’t likely to get any easier with Comcast Corp.’s /zigman2/quotes/209472081/composite CMCSA -1.51%  Peacock service due April 15 for Comcast customers and July 15 for everyone else. In May, AT&T Inc.’s /zigman2/quotes/203165245/composite T -1.43%  WarnerMedia will launch its HBO Max offering.

See also: Comcast announces Peacock streaming service with free, subscription options

Heightened competition has weighed on Netflix stock, the poorest-performing of the so-called FAANG grouping over the last 12 months, inching up just 0.2%.

At the same time, Facebook Inc. /zigman2/quotes/205064656/composite FB +1.43%  (48%), Apple (103%), Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -0.03%  (10%), and Alphabet Inc.’s /zigman2/quotes/202490156/composite GOOGL +1.85%   /zigman2/quotes/205453964/composite GOOG +1.61%  Google (33.6%) have posted strong gains.

/zigman2/quotes/202353025/composite NFLX 369.03, -2.68, -0.72%

Yet Wall Street analysts insist the worst may be over for Netflix. Indeed, since Disney+ debuted Nov. 12, Netflix shares have rebounded, rising 16%. The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.82%  is up 10% since then.

Goldman Sachs expects strong results and steeper gains in paid global subscription additions. On Tuesday, it hiked its Netflix price target to $450 per share from $400 per share, implying 32% upside for Netflix, which closed at $339.67 per share on Friday.

Netflix’s deep roster of movies and shows in the fourth quarter should propel its fourth-quarter subscription additions to 9.7 million — well above guidance of 7.6 million — Goldman Sachs senior equity analyst Heath Terry predicted in a note to clients.

“We are optimistic about Netflix’s ability to grow through the proliferation of competitive SVOD services, though recognize the timing of the Disney+ launch in the United States and Canada could cause some near-term net adds volatility,” Stifel internet analyst Scott Devitt said in a Jan. 15 note. He recommends a Buy on Netflix shares with a price target of $400.

See also: Netflix could lose 4 million U.S. subscribers in 2020, analyst warns

“Although we continue to have lower confidence levels around Netflix’s quarter-to-quarter performance relative to the other large-cap tech stocks in our universe, we remain very optimistic on the long-term future of the platform,” Brian White, an analyst for Monness Crespi Hardt, in a Jan. 13 note, added.

Fueling the good thoughts is Netflix’s willingness to spend big on content. It is expected to pour $17.3 billion into content in 2020, according to a new forecast by Wall Street firm BMO Capital Markets, up from $15.3 billion in 2019. By contrast, Apple spent more than $6 billion on new TV shows and movies for Apple TV+.

“Netflix needs to continue to produce hit movies and must-watch shows in order compete for viewers’ time and wallets in the face of competition from Disney, Apple and others,” eMarketer forecasting analyst Eric Haggstrom said.

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