Netflix shares set for worst quarter since 2012 as competition looms

SAN FRANCISCO (Reuters) - Shares of Netflix NFLX.O dropped nearly 4% 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 DIS.N and other rivals.

FILE PHOTO: Gamers and visitors take a rest at the booth of Netflix during Europe's leading digital games fair Gamescom, which showcases the latest trends of the computer gaming scene in Cologne, Germany, August 21, 2019. REUTERS/Wolfgang Rattay

Netflix has lost 30% 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 AAPL.O 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 Nov. 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% since April 11, when it unveiled its new service. Apple's Apple TV+ service debuts on Nov. 1, adding to competition from AMZN.O, Hulu and others.

(Graphic: Netflix's stock reacts to growing competition, )

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 Oct. 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% above Netflix’s current price of $255.

Reporting by Noel Randewich; Editing by Chris Reese