This Netflix Analyst Says Q4 Subscriber Numbers Will Be Underwhelming: Here's Why

Streaming giant Netflix, Inc. NFLX is up against a tougher comparison following the COVID-19-induced strength in 2020.

The Netflix Analyst: JPMorgan analyst Doug Anmuth maintained an Outperform rating on Netflix shares and reduced the price target from $750 to $725.

The Netflix Thesis: Netflix's fourth-quarter net adds were lumpy, as the company started the quarter with a significant spike and buzz around the "Squid Games" released in late September, analyst Anmuth said.

Download growth then slowed and ultimately declined into early December before picking up on more favorable seasonality and stronger content releases, the analyst said.

The company is also facing tougher comparisons from its India Streamfest event in the first half of December 2020, the analyst noted.

"We believe retention of 'Squid Game' driven subs is critical, particularly in APAC where NFLX is under-penetrated," Anmuth said in the note.

A year after Streamfest, Netflix has cut prices in India across all plans, including g a 60% reduction to the Basic offering, which should help at the start of 2022, the analyst said.

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Despite the strong content slate, the analyst reduced his fourth-quarter net adds estimate from 8.8 million to 6.5 million, citing light download data. The company had guided to 8.5 million in net adds, the analyst noted.

JPMorgan's overall positive view on Netflix certainly doesn't change on a few million subscribers across two quarters, Anmuth said. The firm's 2022 net adds estimate revert to 21.5 million — almost exactly where it was three months ago, he added.

The analyst slightly increased his fourth-quarter operating Income estimates to $530 million and 6.9% margin, above the guide of $500 million and 6.5% margin.

"We model ~275bps of OI margin expansion in 2022 & $1B+ in FCF — we are approaching the point where NFLX will no longer be able to suppress its FCF generation, even with heavy content spending," JPMorgan said.

Netflix remains a top pick in 2022, the firm added.

Netflix Price Action: At last check Thursday afternoon, Netflix shares were slipping 2.37% to $553.76.

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Photo by Alexander Shatov on Unsplash