Analysts See Netflix Holding Its Own After November Disney Plus Launch

Higher international average revenue per user forecasts in Asia Pacific, Europe and the Middle East led Pivotal Research Group to raise its year-end 2020 target price for Netflix to $425 from $400. For Q4, it’s forecasting 600,000-plus net new U.S. subscriber additions and more than 8 million internationally, ahead of guidance, wrote analyst Jeffrey Wlodarczak in a Thursday investor note.

Netflix stock has “climbed a wall of worry” with the Disney Plus launch, which Pivotal sees as complementary and positive to Netflix. Apple TV, “as we expected fell flat on its face,” Wlodarczak said, calling Apple’s foray as an over-the-top video provider “at least a couple of years away, if ever, from being a legitimate threat” to Netflix.

Disney Plus’ “massive” initial subscriber figures are due to being free for roughly 20 million potential U.S. households, said the analyst, saying usage by consumers who have downloaded the app has been “anemic” and not surprising given the lack of original content: “We frankly believe the heavy Disney discounting is a mistake that will likely show up in very high subscriber churn as they try to move consumers even to their relatively low monthly pricing.”

Aimed at households with kids under 13, Disney Plus “is certainly not a NFLX killer,” Wlodarczak said. For 2020, Pivotal expects Netflix to add more than 2 million net new subscribers in the U.S., 27 million globally. Direct-to-consumer OTT services “have material room for growth left,” plucking share from traditional media, and Netflix “should continue to lead the charge,” he said.

Pivotal believes few players will be able to keep up with Netflix content spending levels and sees a two-horse race with Disney Plus “where both horses can win, with Amazon on the periphery.” AT&T may not be willing to spend to the level needed to make HBO a viable long-term competitor, Wlodarczak said. “The biggest loser in our view continues to be non-Disney traditional PayTV players that rely on rising per subscriber fees and high advertising loads and don’t have other businesses to offset likely accelerating weakness in PayTV.”

Meanwhile, Cowen estimated Disney Plus had about 24 million U.S. subscribers at the end of November, based on its survey showing 21 percent of respondents said they signed up for the service with a mix of 34 percent free and 66 percent with a free-paid mix. Some 19.4 million respondents indicated they were subscribers to both Netflix and Disney Plus, for 80 percent overlap, it said in an investor note.

Cowen’s survey suggests 11.1 million Netflix subscribers churned in November after signing up for Disney Plus, said analyst John Blackledge. It predicts 1.6 million Netflix subscribers will drop the service in Q4 after signing up for Disney Plus, “assuming a portion would’ve churned regardless” of the Disney launch,” said Blackledge. Netflix’ “incremental churn appears manageable,” he said. Cowen expects Netflix to “hit or exceed” Netflix’ Q4 U.S. subscriber guidance “as a strong content slate & seasonal strength offset the incremental churn.”