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How Disney Could Pose a Threat for Netflix

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Jun. 26 2019, Updated 2:48 p.m. ET

Netflix’s sluggish growth in the US

Whereas Netflix’s (NFLX) paid subscriber additions have been strong internationally, they have grown sluggishly in the US, possibly due to stiff competition in the streaming space and price hikes. In the first quarter, Netflix’s US streaming contribution margin contracted year-over-year to 34.4% from 34.8%. The company expects a US contribution margin of 34.9% in its next quarter.

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Could Disney hurt Netflix?

Morgan Stanley analyst Benjamin Swinburne expects Walt Disney’s (DIS) Disney+ streaming service to attract more subscribers than Netflix in the US by 2024, as Netflix’s domestic growth is slowing. Disney is also set to terminate its movie streaming contract with Netflix when it launches its service in November. Swinburne expects Netflix to reach ~79 million domestic subscribers by 2024, while Disney+, Hulu, and ESPN+ combined are expected to attract ~95 million.

However, Piper Jaffray analyst Michael Olson expects Netflix to beat US subscriber growth expectations in the second quarter. Netflix added 1.74 million US paid subscribers in Q1 2019, whereas it had forecast its subscriber additions falling significantly YoY (year-over-year) to 0.3 million from 0.87 million.

Olson, who has reiterated his “overweight” rating and $440 price target for Netflix, expects its domestic subscriber base to grow 11.7% YoY. Netflix has guided for 8.2% growth.

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