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Netflix (NFLX) turns red on growth concerns, competition

Netflix Inc. (NASDAQ: NFLX) stock is trading in the negative territory on Monday after climbing to the yearly high of $392.95 last week. The investors remained concerned about the company’s subscription growth in the US, which has been missed for the third quarter in a row.

The shares have risen over 25% in the past six months and over 18% in the past three months. The market experts believe that Netflix still looks undervalued based on its current market price and future growth prospects. However, the company faces a series of serious competitive threats.

Netflix
Courtesy: Kon Karampelas on Unsplash

Many media companies are launching their own streaming services, and this is likely to increase rivals’ strength in streaming entertainment. During the fourth quarter, Netflix has struggled to expand the views per membership both worldwide and in the US despite the big debut of Disney+ and the launch of Apple TV+.

The company continues to face an immense threat from its rivals. This includes Amazon (NASDAQ: AMZN), Walt Disney (NYSE: DIS), Apple (NASDAQ: AAPL), HBO Max, NBCU’s Peacock, and Quibi. As competition increase, Netflix continues to see the cost of programming increase as well as see problems in securing exclusive rights for original content.

This has turned out to be a concern for Netflix as the growth prospects would possibly shrink. The company is expected to incur more debt arising from the investments needed in more quality content for surviving in the competition. As of December 31, 2019, the company had total debt of $16.37 billion while the total cash stood at $5.02 billion.

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Despite becoming profitable in the recent quarter, Netflix’s shareholders are expected not to receive the dividend, which remained a concern. The dividend is not likely to happen now nor in the foreseeable future. Despite remaining as a growth stock, investors don’t consider the company as a potential investment.

Read: Avid Technology stock rides on growth prospects

For the fourth quarter, Netflix posted a 31% jump in revenue backed by another strong growth in subscriptions. The number of paid members increased by 20% to 167 million at the end of the period. For the first quarter, the management expects a global paid net adds to be 7 million, which represents a decline from last year.

The shares have closed Friday’s regular session at $380.07. The stock, which has been trading between $252.28 and $392.95 in the past year, is above the 50-day moving average of $355.05 and the 200-day moving average of $309.52. The stock is likely to head lower in the near-term until the growth prospects look promising.

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