Netflix shares have slipped more than 3% in the pre-market trading hours after a new report via equity research firm Needham & Co. downgrades the streaming company from hold to underperform, reported The Street.
Laura Martin, a managing director at Needham, warned Netflix could lose upwards of 4 million US subscribers in 2020 thanks to intensifying competition in the streaming space.
Netflix first disclosed the prospects of waning subscriber growth during an Oct. conference call.
The launch of other streaming services has dented Netflix's subscriber growth. In about a month, Disney+ has attracted nearly 20 million subscribers.
Martin said back in Oct. that Netflix could "lose 10 million subscribers in 2020 if they don't have an alternative to the standard price of $13 per month." The recent price surge has been a significant driver in the slowdown of growth, considering Disney+ is half the cost.
If Netflix cannot maintain its robust subscriber momentum through 2020, the company is likely to pull back on content spendings, such as $20 million comedy specials for Dave Chapelle and Amy Schumer.
Netflix has roughly 151 million paid subscribers globally, it has one of the largest subscription businesses in the world, funding content creation through borrowing billions of dollars, but if subscriber growth continues to falter in the US and through 2020 - the company might have to change its spending habits.
Concerns about decreasing subscriber growth could spook investors, considering the company has added more than $14 billion in debt to fund its operations.
"I think they have an unsustainable business model," Michael Pachter, an analyst at the wealth management firm Wedbush Securities, said. "WeWork had the same argument: 'We're building something to last.' But getting to profitability risks cutting their share price."
Netflix is risking a subscriber exodus in 2020 if it doesn't cut the price. Shares of the company could re-test the 240 level as pessimism increases.