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Netflix's Subscriber Numbers Will See 'Very Little' Impact From Disney Deal Cancellation

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Netflix's Subscriber Numbers Will See 'Very Little' Impact From Disney Deal Cancellation
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When Walt Disney Co (NYSE: DIS) announced last week that it would launch two streaming TV services, the move was considered to have far reaching implications for several industries such as cable, satellite and other video streaming companies.

The streaming services are set to be rolled out in 2019.

As a corollary of the announcement, Disney said it would end its distribution deal with Netflix, Inc. (NASDAQ: NFLX). The current deal is set to expire around the end of 2019; therefore, Disney movies with release dates through the end of 2018 would be fair game for Netflix to stream.

Meanwhile, a Reuters report, quoting Netflix Chief Content Officer Ted Sarandos, said the company is in active discussions with Disney to keep Marvel and Lucas Film releases, including "Star Wars" films, even after 2019.

See also: 11 Wall Street Analysts Weigh In On Netflix's Blowout Quarter

Tremendous Value Even Without Disney Content

Meanwhile, analyzing the impact of the development, Loop Capital Markets said it would not have much of an impact on Netflix global subscribership, as the core price of $7.99 per month still offers tremendous value, even without the Disney content.

Analyst David Miller estimates that the Disney content on Netflix now represents 5.3 percent of the total viewer hours on the platform. The analyst said most Netflix subscribers don't think of it as a movie service but as a binge-watching TV episodic service.

Even if some Netflix subscribers drop off due to the Disney desertion, the analyst thinks Netflix will reallocate the $300 million it pays Disney to produce alternative content, which could bring in incremental subscribers (see Miller's track record here).

Raising Subscriber Forecasts

After a cursory review of its model in the wake of Disney's announcement, Loop Capital Markets increased its subscriber assumptions for Netflix through 2018, as it feels it has been conservative in its assumption.

Accordingly, the firm now estimates end of the year 2017 global subscribers of 115.1 million, up from 114.8 million it estimated previously. The revenue guidance now goes from $11.42 billion to $11.51 billion and GAAP earnings per share estimate from $1.14 to $1.17.

The firm also upwardly revised its 2018 global subscriber forecast from 132.6 million to 136.3 million, revenue estimate from $13.45 billion to $13.92 billion and GAAP earnings per share estimate from $1.83 to $2.11.

Delving into sports streaming, Loop Capital Markets does not think Netflix will venture into that area, given it would want to avoid the scenario of being a bidder for already existing rights at measurably higher prices.

"The appeal in the NFLX product is a smorgasbord of content for a very low monthly price. Raising price in order to support live streaming of sports would destroy that paradigm," the firm added.

Additionally, the firm said there are not enough sports in existence to make each sport substitutable.

Loop Capital has a Buy rating on Netflix and a $205 price target.

Latest Ratings for NFLX

DateFirmActionFromTo
Nov 2018BuckinghamUpgradesUnderperformBuy
Oct 2018Raymond JamesMaintainsOutperformOutperform
Oct 2018Imperial CapitalMaintainsOutperformOutperform

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