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Why Wall Street fell out of love with Netflix

Netflix's stock plunged over the past several months, hammered by fears of increased competition from other streaming rivals.

(CNN) — Netflix’s stock plunged over the past several months, hammered by fears of increased competition from other streaming rivals.

The planned launches of Disney+ and Apple TV+ are propelling streaming into a new era, with established companies like Netflix facing off with new players in the industry.

Netflix shares plunged 30.2% from its last peak on July 10 through the close on September 23. On July 18, shares dropped 10.2% following Netflix’s second quarter earnings for 2019 the day before, which reported worse-than-expected subscriber additions. Netflix stock turned negative for the year Monday, and is down 0.7% year-to-date as of Monday’s close.

“When they lost subscribers for the first time in eight years, it spooked investors and they thought maybe something was wrong,” said Michael Pachter, an analyst at private financial services firm Wedbush.

Netflix had the first-mover advantage in the industry, with substantial growth in both subscribers and revenue since it rolled out streaming in 2011. However, with Disney+ and Apple TV+ set to offer streaming at a much lower price point, Netflix may not be able to replicate its past phenomenal growth.

Growing content costs, including renewals and fees for exclusive agreements, also challenges Netflix to make money without raising subscription fees.

Last year the company reportedly paid $100 million to continue licensing the ’90s sitcom “Friends” through 2019. It’s also going to lose “The Office,” as NBCUniversal reportedly paid $500 million to pull the hit show off Netflix for its upcoming streaming service Peacock. Cable providers are losing customers at a staggering rate, so expanding or building their own streaming services is becoming increasingly important. That adds new also challengers to Netflix.

“All the media companies are going to fight back and draw back their content,” Pachter said.

As Netflix looks at greater international expansion, poor infrastructure in some markets poses a challenge. Africa, the second most populous continent with 1.2 billion people whose median age is 20, is a logical market to expand streaming. But only 22% of its population has internet access, the research firm Trefis said.

“Expansion costs money, and they are burning a lot of cash internationally on infrastructure, which is so poor that they’re not even close right now,” Pachter said.

Subscriber growth is an important part of its business model, but Netflix’s performance is no longer driven by subscribers. The popularity of its content drives Netflix’s success. To attract subscribers internationally, it needs to have a broad content library that caters to the preferences of a diverse audience.

While much of Netflix’s US content has global appeal, it is unclear how much the content developed for other countries or regions appeals outside of that specific geography.

“While International looks like a stronger growth story, investors must worry about how this drives up content costs as these countries appear to demand more local content,” said Jim Nail, an analyst at research firm Forrester. “This further fogs the path to profitability.”

In its pursuit of attracting and keeping subscribers, Netflix is burning staggering amounts of cash to pay for blockbuster original hits like “Stranger Things,” ” The Crown” and “Ozark.”

Instead of looking like a technology company with fast growth and a limitless customer pool, Netflix is starting to look more like a movie studio, depending on blockbuster hits for phenomenal numbers.

“Netflix’s own content has to be good enough to keep subscribers — it doesn’t even have to be great — but I’m just not seeing them successful with that so far,” Pachter said.

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