September 2019 will be remembered as a brutal month for the stock of Netflix. By the end of September, the value of its shares had already weakened by more than 10% and even turned negative for 2019, erasing its previous year-to-date advance. The reversal of its 2019 advance provided a highly negative signal for  its stock holders to digest when considering that its valuation was higher by above 40% for 2019 as recently as May, meaning that the stock suffered a decline beyond 40% within five months.

Fears persist that Netflix stock represents a falling knife, but temptation present

Such headlines around persistent selling raise questions that after such a rough couple of months for the Netflix stock, could this be a falling knife that bargain hunting investors would be wise not to try catch?

Temptation to buy Netflix stock after a period of fire selling is naturally appealing after it had previously been viewed as a darling of the stock market, following a rally that saw Netflix smash the returns of the S&P 500 by more than 1,750% between 2009 and the end of 2015. An investment of $1000 in Netflix shares 10 years ago would have been worth over $40000 10 years later, representing an astonishing return above 4000%.

October 16 results announcement weeks before arrival of competition pivotal moment for investors

Headlines arising last month that the stock faced its heaviest quarterly decline since 2012 is an alarming signal, and just as problematic for investors to consider is that its stock is facing another critical month in October. This is because Netflix is scheduled to report its third-quarter results on October 16.

For Netflix’s upcoming release of Q3 results, a huge emphasis will be placed on the amount of new subscribers, but also the guidance provided for customer acquisition over Q4 will be as critical for investors to digest as the streaming atmosphere welcomes the long-anticipated arrival of both Apple TV and Disney+ in November.

Customer retention is naturally essential to any business, but it will be under scrutiny for Netflix, particularly over the coming period as their industry receives competitor challenges from the arrival of massive household names over the coming months. Sentiment has not been helped by the fact that both Apple TV and Disney+ services will be charged at a lower price point than Netflix, something that executives at the firm will need to withstand at a time where eyeballs are monitoring the long-term debt that Netflix has built up in recent years.

Competitors like Amazon, Apple and others are undeniably stronger when it comes to how well-capitalized these corporations are, while they are also supported by the ecosystem that has been developed through a number of different products on offer.  

Competition fear for Netflix is real, although advantage stands for firm to focus further internationally 

Netflix needs to be able to show investors on October 16 that it can still acquire new customers in light of growing competition. If it can maintain this objective and provide positive guidance on future customer metrics heading into 2020, then this news should entice investors who are already aware that next year will see even further competition emerge from the launch of HBO Max. 

Netflix has strategically focused on growing its international reach in recent years through diversifying its offering to a wide range of different demographics and localised content. This has occurred with a heavy investment in costs, but it is hoped it will encourage the firm to establish a strong foothold with international subscribers.

There are still opportunities for Netflix to impress investors that it can continuously expand its international audience with content to suit multiple demographics. It is at least expected initially that the arrival of Disney+ will concentrate on “family friendly” content, diluting the risk of Netflix losing customers with it also seen as domestic competition through the knowledge that Disney+ will only launch in four non-US markets for now.  

Growth in international subscribers is crucial for Netflix and the metric on whether it has managed to expand on its 60% of customer base that reside outside of the United States represents key reading for the October 16 announcement.

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