For college students everywhere, Netflix is our saving grace. There is nothing quite like snuggling up on the couch with your roommates and sharing a big bowl of popcorn over a Disney classic. But despite the company’s recent addition of hundreds of new TV shows, documentaries, stand-up performances, and hit movies, Netflix’s stock has plummetted 15% in just three weeks.
Last Friday, Evercore ISI analyst Ken Sena downgraded Netflix (NFLX) to a “sell.” CNN is calling this a pretty bold move – Wall Street almost never cut companies to anything lower than a “hold.” Evercore ISI even released a doctored poster of hit show Orange is the New Black – replacing “orange” with “red” (the color traders see on their screens when a stock is falling).
So why is Netflix, beloved by millions of subscribers, suddenly nearing the end of its glory days? Sena believes this is due to the company’s fierce competition with services like Hulu, Amazon, Xfinity On-Demand, HBO Go, Direct TV, and more. Netflix will have to keep upping its content collection if it wants to attract subscribers. In the long term, this gets crazy expensive.
Netflix recently took a big financial leap with their acquisition of Friends, a former staple NBC sitcom. However, they have just bowed out of a bidding war with Amazon, Yahoo, Disney, and Hulu for the rights of Seinfeld. Netflix is probably just trying to make a money-saving decision on their part, but that also means one of their competitors is about to snag an immensely popular show that just may rival the love story of Ross and Rachel.
Another issue is the negative criticism of the company’s original series, House of Cards. USA Today Critic Michael Wolff wrote of the third season, “‘House of Cards’, which appeared to usher in the golden age of Internet-produced, over-the-top delivered television, could already be signaling its end.”
Netflix depends on subscribers to keep Wall Street happy, and expectations are enormously high – just look at its stock price. Despite the recent decline, the company is still trading at more than 130 times 2015 earning estimates. Netflix, keep churning out hits, and we’ll keep watching!