The latest earnings figures for streaming giant Netflix (NFLX) didn't look great. Released back in mid-July, the company offered a second consecutive quarter of subscriber losses. However, it also projected a net gain for the third quarter. New reports suggest a potential path forward for Netflix. Creative Media founder and chairman Peter Csathy suggested that Netflix was simply overlooking a great deal of franchise potential from producing horror films.
He pointed to several other recent successes, including the revitalized "Scream" franchise, as well as the more recent success of "Insidious" and the further revival of "Halloween," as demonstrated on NBC's Peacock platform.
Csathy's assertions come at the right time, but is it as simple as that? Netflix may have a great opportunity afoot by taking advantage of the horror market. It's certainly the right time; horror's prime time is coming up with North America's autumn.
Back in April, I was bullish on Netflix. However, I've since shifted to neutral. Two straight quarters of subscriber losses scream for a solution. That solution may just be screams after all.
The last 12 months for Netflix shares featured a slow climb that ran from August into November. This was promptly followed by a slow decline, then two sharp declines about three months separate from each other. Now, the company has plateaued, holding mainly in the $175 - $225 range for the last three months. That's down substantially from its 52-week high of $700.99, however.
What Do Analysts Say About NFLX Stock?Turning to Wall Street, Netflix has a Hold consensus rating. That's based on seven Buys, 19 Holds, and six Sells assigned in the past three months. The average Netflix price target of $229.30 implies 1.8% downside potential.
Analyst price targets range from a low of $157 per share to a high of $365 per share.
Netflix's Smart Score Suggests Decent Performance AheadRight now, investor sentiment is clearly desperate for a big new draw. NFLX has a Smart Score of 7 out of 10 on TipRanks. That's the highest level of "neutral," suggesting a slight likelihood that Netflix will ultimately outperform the broader market.
However, retail investors seem to be losing faith. The number of TipRanks portfolios that held Netflix stock dropped 0.4% in the last seven days. Nonetheless, this figure is up 0.5% over the last 30 days, which suggests the sea change taking place has really only just begun.
Is It Really as Simple as Adding Horror Films?So, what about horror? Is Peter Csathy right that horror will solve Netflix's ills? Well, he might have the right idea, but it may not be quite that simple. Csathy has an excellent point about horror's impact in general. Netflix's "Stranger Things" is actually its most-watched show. It also recently garnered the title of the most-viewed streaming series ever over a single week.
Meanwhile, back in July of last year, Netflix also had a hit in "Fear Street," a series of three releases covering different time periods. The mini-series proved to be one of Netflix's most popular releases, reports noted at the time.
Those two points together lend Csathy's viewpoint a lot of extra credence. Better still, there's a wide body of evidence from before the pandemic that said horror was an excellent investment. Horror movies tend to draw a diverse following among younger demographics.
In 2017, the horror movie market grossed over $1 billion at the box office all by itself. Spurred on by titles like "The Nun" and, yes, the first installment of the second "Halloween" revival, horror proved its chops in the late pre-pandemic era.
A 2017 study from Movio revealed that 44% of paranormal horror fans would go to the movies at least once a month. Similar numbers were found from 56% of science-fiction buffs.
Yet, for the biggest indicator of success in horror films, one needs to look no farther than Blumhouse Productions. For years, Blumhouse struggled to get films into theaters.
However, a string of hits—starting with Paranormal Activity and recently emerging with The Purge and Get Out, among others—changed people's minds. Get Out required just $4.5 million to produce but grossed $255.5 million worldwide, offering another reason to get in the field.
Horror films tend to have a loyal following. The Movio study supports this notion and includes more anecdotal information from individual horror enthusiasts. However, it may not be as cut-and-dried as past studies indicate.
After all, a lot of that data comes from a time when video stores were still in wide operation. Family Video's permanent closure in early 2021, thanks mainly to COVID-19 lockdowns and a sputtering release pipeline, changed the field forever. There's certainly a market for streaming horror.
The biggest proof of that is the existence of Shudder, a streaming service that recently crossed the one-million subscriber mark. However, the market is not what it once was. The comparatively recent nature of the changes, meanwhile, prevents large-scale studies from being produced.
Conclusion: Would Horror Films Make NFLX Stock a Buy?Can Netflix recover its lost audience with horror? It's certainly possible. Netflix has already done quite well with horror releases. Shudder's push suggests there's a market out there. Netflix's deep pockets could bankroll quite a few horror scripts, allowing it to best find which ones could become whole new franchises in the making. The evidence suggests it might be a good plan. Still, for now, I remain neutral. No matter what Netflix ultimately pulls out of its hat, it needs to pull something quickly.
Economically, horror movies have often meant big business for their studios. Their comparatively low cost and the generally interested market certainly help. Whether a big repertoire of scares will turn the market for Netflix remains to be seen.