Image from House of Cards. Image source: Netflix.
It's raining naysayers when it comes to Netflix (NFLX +0.96%) these days, and the latest boobird -- a Wall Street pro who is actually still bullish on the stock but lowered his price target for the shares on Tuesday -- fears that the Olympics will slow the leading streaming service's popularity this summer. It may not be fair to call Cowen analyst John Blackledge a boobird. He did after all reiterate his "outperform" rating on the stock and lowering his price target from $135 to $130 still leaves plenty of headroom from present levels.
However, Blackledge's concern that the Olympics will weigh on usage -- along with fear that Netflix cancellations will rise following a looming price hike for accounts grandfathered into a $7.99 or $8.99 rate over the past two years -- deserves a closer look.
Her name is Rio
It's not a crazy assumption. The Olympics will take place in Brazil from Aug. 5 to Aug. 21, and all eyes will be on Rio during those two weeks. If there are doubts about Netflix's stickiness during the summer games, it could be that Netflix itself planted the seed four years ago.
"[T]his quarter the Olympics are likely to have a negative impact on Netflix viewing and sign-ups," Reed Hastings wrote about Q3 2012 in his shareholder letter detailing Netflix's second quarter results in 2012.
This was two weeks ahead of the 2012 games, and it wouldn't be a surprise if Hastings again takes a cautious note when Netflix announces second-quarter results next week.
And Netflix did indeed prove mortal that summer four years ago. The midpoint of its guidance at the time was calling for 1.4 million domestic net additions and 0.5 million internationally for the quarter. That's a total of 1.9 million more subscribers targeted for the end of Septrmber 2012 than it had three months earlier.
How did it all turn out? Netflix closed out the period with 1.85 million net adds, just below the dot-com service's goal. It also only tacked on 1.16 million net subscribers domestically, a shortfall that was only partly offset by stronger-than-expected strength overseas.
That's the kind of performance that can weigh on analysts that are paid to remember the past and learn from it. However, we did wind up with conflicting third-party perspectives on how the 2012 Olympics played out for Netflix. Procera Networks claimed that Netflix streaming traffic was off by a sharp 25% on a Sunday night during the Olympics. Rival internet traffic tracker Sandvine reported that traffic actually increased.
Stream it again, Uncle Sam
Netflix wound up serving 3 billion hours of content during the last Olympics quarter. That's not too shabby.
However, the real takeaway is that it's silly to weigh a company over a rare two-week lull that happens every four years. Netflix's subscriber count may have come in a little light during 2012's third quarter -- and Cowen's Blackledge isn't the only one bracing for uninspiring Q3 guidance next week -- but what has happened between the 2012 and 2016 Olympics? Netflix has gone from 27.6 million streaming subscribers to what it expects to be 84 million accounts four years later.
International growth is also the biggest driver of subscriber growth these days. That wasn't the case the last time the Olympic torch greeted the world's top athletes. The Olympics are a global event, sure, but don't forget that Netflix exceeded its international forecast four years ago.
We also can't forget that Netflix followed up the 2012 Olympics by becoming the best-performing component of the S&P 500 in 2013. There may have been a setback following Netflix's ho-hum financials that summer, but it turned out to be an amazing buying opportunity. The competitive spirit is still alive in Netflix, and it has no reason to settle for anything less than gold next week, next month, and definitely next year.
