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Takeaway: We remain Short Netflix (NFLX) in the Hedgeye Communications Position Monitor


Editor's Note: This is an excerpt from a recent research note published on 9/18. If you're an institutional investor interested in viewing the full slide deck email sales@hedgeye.com.


The growth rate in Netflix (NFLX) mobile app downloads accelerated in July/August coincident with the release of hit series "Stranger Things" and "Orange Is The New Black," only to slow again in the first two weeks of September. We continue to believe that as competition intensifies and Netflix raises the price of their service:

  1. Rate of adoption will slow
  2. Churn will increase
  3. Quarterly subscriber metrics will become more volatile and hit-driven  

Worldwide NFLX mobile app download growth increased to 18% YoY QTD through 8/30 but is on track to finish the quarter closer to 13% YoY if the September slowdown persists through month-end.

While this growth rate is an improvement from 7% in 2Q19, it is well below the 30% average growth rate from the two years prior. Please see the charts below and slide deck for additional takeaways.

downside risk to q3 subscriber estimates

We believe NFLX mobile app downloads are a good proxy for gross subscriber additions based on the high absolute correlation to NFLX's reported metrics.  While the data suggests that Q3 net subscriber additions will be much better than Q2, we believe the improvement is more than reflected in management's Q3 guidance of 7 million net new paid subscribers.

Overall, we see downside risk to Q3 subscriber estimates if the September slowdown persists and churn remains elevated (we will be launching our quarterly churn survey at month-end). 

We continue to monitor the data closely and will provide another update in early October with our final thoughts and analysis.