Could Tariffs Impact Streaming Giants Like Netflix?
The question of whether streaming platforms, particularly Netflix, will be adversely affected by a potential tariff war reminiscent of the “Squid Game”series initiated by Donald Trump is a pressing concern among industry analysts. Recent discussions on Wall Street delved into this issue, assessing how such economic disruptions could influence the streaming landscape.
Analyst Insights on Tariffs and Subscriber Churn
Bernstein’s Netflix analyst, Laurent Yoon, highlighted growing anxieties related to tariffs, the churn following NFL games post-Christmas, and a decline in viewer engagement within his analyses. Notably, he noted the kind of fluctuation in Netflix’s stock prices, which saw a significant drop after another analyst speculated that the service’s success in converting password sharers to paying subscribers had peaked.
On the day following what Trump termed “Liberation Day,”Yoon revisited his analysis, remarking, “Yet another note on tariffs, but it’s hard to chill these days.” This echoed the ongoing dialogue surrounding Netflix’s financial trajectory amidst rising tariff tensions.
Netflix’s Experience with Tariffs
Yoon pointed out that Netflix is somewhat accustomed to dealing with tariffs, particularly after paying the Digital Services Tax (DST) in countries like the United Kingdom, France, and Spain since 2019. He expressed concern that increasing tariff rhetoric from European nations might result in additional taxes for Netflix and similar digital platforms, potentially hindering their growth in crucial markets.
Arguments for Netflix’s Favorable Position
To assuage fears regarding potential penalties, Yoon presented three arguments supporting Netflix’s resilience:
- Economic Contributions: Netflix employs a significant number of full-time equivalents across the Europe, Middle East, and Africa (EMEA) region, investing billions in local content and complying with varying country regulations.
- Market Leadership: In the major EMEA markets—Germany, the UK, France, Italy, and Spain—Netflix dominates the subscription video-on-demand (SVOD) landscape, facing competition chiefly from Amazon Prime Video and Disney+.
- Consumer Impact: The imposition of tariffs would likely lead to price increases affecting local consumers more than the service providers themselves.
Despite these points, no European nations have imposed retaliatory tariffs on U.S. companies thus far. Yoon stated that Bernstein would revise its financial models to consider any significant tariff measures affecting U.S. digital services when necessary.
Current Stock Outlook and Future Projections
Yoon has maintained an “outperform”rating for Netflix with a price target of $1,200 per share. While he remains optimistic, he acknowledges that unfavorable market sentiment could represent a headwind for Netflix and other services, particularly in Europe. He noted that any slowdown in this crucial growth market could pose risks to near-term earnings per share.
Even with an anticipated 30% deceleration in subscriber growth within EMEA, Yoon believes Netflix’s value remains robust, predicting it will exceed the $1,000 mark in stable market conditions. His projections for subscriber growth in EMEA estimate an increase from 101 million in 2024 to 120 million by 2026, reflecting a compound annual growth rate (CAGR) of 9%. However, he cautioned that the introduction of tariffs could lead to higher churn rates and a decline in subscriber acquisition.
Potential Revenue Implications
Furthermore, Yoon’s analysis forecasts a 5% CAGR for average revenue per member (ARM) in the EMEA region. However, if tariffs hinder growth, the ARM could decrease by as much as 2.7%. Combining these impacts, Bernstein estimated a potential 10% downside to the earnings per share forecast of $36 for 2026. Fortunately, given Netflix’s strong competitive positioning, the actual impacts might be less severe, yielding a downside likely in the mid-to-high single-digit range.
Conclusion and Upcoming Earnings Call
As is tradition, Netflix will initiate the Hollywood earnings season on April 17 after market close, with investors closely monitoring management’s commentary regarding the implications of tariffs on business operations and financial performance.