Shares of Netflix dropped nearly 4 percent on Tuesday and were on track for their deepest quarterly decline in seven years after two analysts added to growing worries about an impending wave of competition from Walt Disney and other rivals.
Netflix has lost 30 percent since the end of June, and if that decline holds until Monday, it will have been the worst quarterly performance for the video streaming heavyweight's shares since 2012.
Upcoming streaming services from Walt Disney and Apple have added to worries about Netflix's slowing subscriber growth and rising costs as it increases spending to create top-tier series like Stranger Things and The Crown.
Viewed as the most dangerous threat to Netflix, Disney+ is set to launch on November 12, with a slate of new and classic TV shows and movies from some of the world's most popular entertainment franchises. Disney's shares are up 14 percent since April 11, when it unveiled its new service. Apple's Apple TV+ service debuts on November 1, adding to competition from Amazon.com, Hulu and others.
Pointing to growing competition and higher costs, Pivotal Research on Tuesday slashed its price target for Netflix's stock to $350 from $515.
"Our new forecasts imply they are going to respond to content cost acceleration by revving up their own content spend that will allow them to maintain their subscriber growth while pushing back profitability materially," Pivotal analyst Jeffrey Wlodarczak wrote in a client note.
In another report, KeyBanc Capital Markets warned that weak results or guidance when Netflix posts its third-quarter report on October 16 could worsen investors' concerns about long-term growth.
"Only very significant upside in 3Q is likely to drive sustainable upside in the shares, and we have little to provide confidence in that outcome," KeyBanc equity research analyst Andy Hargreaves wrote.
Disney's stock in the past month has traded at 23 times expected earnings, its highest forward earnings valuation since 2004, according to Refinitiv data. As investors reconsider the value of Netflix, its forward earnings multiple has tumbled to 52, the lowest since 2011, from 82 in early July.
Forty-five analysts cover Netflix's stock, with a median price target of $410, down from $420 in late June. Its current price target is 60 percent above Netflix's current price of $255.
© Thomson Reuters 2019