Netflix, Inc. (NASDAQ:NFLX) stock has been downgraded to Underperform with an $85 per share price target by analysts at Macquarie, who like the company’s long-term prospects but are bearish on its near-term performance. It’s a daring rating from the firm as FactSet data shows that it is only the seventh with the equivalent of a Sell rating. The other 35 analysts covering Netflix stock and reporting to FactSet have either the equivalents of a Hold or Buy rating on it.

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On the flip side, the argument for the strength of the company’s original content continues to be a favorite of bulls.

Netflix continues international expansion

One of the key arguments in the bull case for Netflix has been its international expansion, but Macquarie analyst Tim Nollen warns that the process of expansion is much more easily said than done. He notes that the company is moving into many countries that already have home-grown competitors for it. These competitors come in the form of incumbent pay-TV operators have been heavily investing in video-on-demand and/ or streaming video-on-demand offerings, and in many cases, these OTT services are sold as add-ons to current subscriptions.

Further, he notes that “numerous” streaming video services have launched in these international markets, often with lower prices and more local content than what Netflix has. He adds that many of his firm’s global TMT analysts are skeptical of Netflix’s launch efforts with price and a lack of “compelling content” seen as the biggest risks to its success in foreign markets.

Netflix needs more local content

As a result, the Macquarie analyst is estimating that Netflix will have only 73 million international subscribers by 2019, which is below consensus. He believes that in order to find success in many international markets, the streaming company will have to partner with local content producers and/ or invest in either more local content or in content that “will travel.”

Nollen adds that this will be a very expensive endeavor, noting that Netflix already has between $16 billion and $18 billion in content obligations, including some “unknown” off-balance sheet commitments. He speculates that this figure will rise even more as a result of the need for local content. After working in his estimates for the company’s three-year profit and loss content costs, he cut his earnings per share estimates for 2017, 2018 and 2019.

Netflix may struggle at home too

He also revived the bearish argument of competition, specifically naming Amazon as a key competitor for Netflix. He noted that the online retailer is doubling its spend on content this year. Also there are many other over-the-top TV offerings becoming available, including everything from HBO Now to “skinny bundles” or “virtual MVPDs” such as Hulu Plus.

In the long-term, he does like Netflix, however, as he says there’s not much doubt that the company will do well due to the soaring popularity of streaming video-on-demand. He explained that the company has “deep pockets, top-notch data to inform on viewership, and a pricing lever,” as it increased its average selling price and still delivered a 28% increase in revenue in the second quarter.

Nollen expects investors to continue to focus on raw subscriber numbers, which he also believes might disappoint in the near term due to weak launches in foreign markets and “price elasticity on demand” at home.

The original content argument for Netflix

Bulls commonly argue for the strength of Netflix’s original content, and apparently there’s still plenty of room for more to be added. According to Deadline, research from 7Park Data shows that  original content viewed by U.S. Netflix subscribers is “one of the smallest percentages of total content viewing among the 16 countries profiled.”

The data indicated that Orange is the New Black was the favorite original show by a long shot from May to June. The latest season became available on June 16 and was hugely popular around the globe as viewership of the show spiked 544% during that timeframe. Apparently Netflix sees big changes in the ratio of original to non-original content whenever it releases new original content.

Shares of Netflix slipped by as much as 2.76% to $96.30 during regular trading hours on Tuesday. For example, the day before the second season of Daredevil was released in March, non-originals made up 88.45% of viewing, but the day it was released, they were 76.3% of viewing.

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