“Does Netflix have enough stuff that’s good enough to keep us coming back?” asks Michael Pachter of Wedbush. “That’s the real acid test. I actually think all these metrics they’re giving us on the crap shows are telling you that people are willing to watch whatever they throw at them because they’re running out of really great stuff to watch. So you get 40 million people watching Adam Sandler, which shocks me, but it happened.”
Michael Pachter, an analyst at Wedbush, discusses Netflix earnings, which reported a huge drop in US subscribers, and if Netflix can survive against Disney and other content streaming companies in interviews on CNBC and Bloomberg:
Does Netflix Have Enough Stuff To Keep Us Coming Back?
I think this is a blip. Netflix subscriber growth is going to be like the movie box-office and when there’s lots of great stuff they’re going to see an increase in subs. The numbers on Stranger Things are pretty impressive. It is a really good show. They have a handful of really great content. They’ll probably hit their 7 million subs number. I think the real problem is next year when there’s competition. We saw a preview of next year with this quarter. So I think next year you’ll probably have a couple of quarters where they actually lose subs.
By my count, Netflix produces about ten times as many shows as HBO and they get about the same number of Emmy nominations. So throwing 10x at the wall they’re going to have their hits. I actually think subscriber growth is going to be based on one of two things, either water cooler chatter kind of shows like Breaking Bad, Ozark, and Stranger Things, that we talked about when they were on and we told people they have to see, or good enough content, which is a high quantity of okay content.
Do they have enough stuff that’s good enough to keep us coming back? That’s the real acid test. I actually think all these metrics they’re giving us on the crap shows are telling you that people are willing to watch whatever they throw at them because they’re running out of really great stuff to watch. So you get 40 million people watching Adam Sandler, which shocks me, but it happened.
Price Increases Drove Subscriber Losses
Price increases probably drove the subscriber loss domestically. I think that they’re probably bumping up against the ceiling on what they can charge and continue to grow. I personally believe that they’ll keep 80 percent of their domestic subscribers at as high as a $20 monthly charge. Their last 10 million subscribers are probably middle-income households and they notice when prices go up a couple of bucks, which they did in January. You’re going to see continued defections as content migrates away from the site and as competition starts to materialize.
There’s Disney Plus in the fall, Warner and Comcast next year, and more content leaving at the end of this year and the end of next year. Middle-income households are probably going to have to think about whether they subscribe to one or two or three plans. Yes, they can cut the cord and maybe afford all of them, but the fact is that Netflix did see a decline of domestic subs. That’s what fuels international expansion and they’re about to lower prices in India. So I just don’t see how they’re really worth the $450 price target most of my competitors have on the stock. Today’s correction makes a lot of sense.
Netflix Is an Overvalued Company
That’s the reason we have cable TV. It was just the easy way to get 200 channels and we’re going backward. Actually, the right solution which is not going to happen is that Hulu is going to be the aggregator. You had three of the four networks that owned Hulu. If they had pooled content I think that actually was the winning formula. Disney has pretty much consolidated ownership of Hulu. I think that ESPN Plus and Disney Plus layered on top of Hulu might actually get us back to that old cable model. We’re going to go over the top (OTT) but you’re going to have a content aggregator and I think it’s going to be Disney. That’s Bob Iger’s vision. and I frankly think you’ll get HBO Max layered on top of that as well.
Netflix has a place. They’re not going out of business. I have a price target that implies an enterprise value of $90 billion which is bigger than Warner Brothers was sold for. So I don’t think this is a worthless company. I think it’s an overvalued company. If consumers are going to try to replicate what they have with cable now at a lower price, sure cut the cord, no more CNBC, too bad, and maybe you can get Hulu, Disney Plus, HBO Max, the Comcast service, Netflix, and Amazon for less money. That’s what Netflix is banking on.
At the End Of the Day, Disney Is Going To Win
Investors are foolish to think that anybody’s going to win except the content creators. The point is we’re watching this show (CNBC) because of you, not because of the platform. We want to see you. You’re the insightful person on this platform. You’re the content and you should command a premium for the content that you provide. Disney’s going to win. I really think at the end of the day Disney has the content. They win.
Stranger Things isn’t going to cut it. It’s one good show out of hundreds and hundreds and hundreds. You can’t name a Netflix original that they own that you actually watch other than Stranger Things. They don’t own Ozark. They don’t own House of Cards. They don’t own Orange Is the New Black. They own stuff like Flaked which you don’t watch or The Ranch which you don’t watch.
