Netflix on Red Alert Yet Again

by Tom Taulli | October 24, 2012 10:26 am

Netflix on Red Alert Yet Again

Well, you have to say one thing about Netflix (NASDAQ:NFLX[1]): There’s never a dull moment. Rather than popping in a Hollywood blockbuster flick, you can get just as much excitement from tuning into Netflix’s quarterly earnings fest.

NFLX didn’t disappoint for Q3 — shares have put on a gory horror show, plunging 16% following the company’s report.

This quarter’s culprit: streaming subscriber growth rate[2]. Netflix added 1.2 million U.S. subscribers to reach a total of 25.1 million — nearer the lower end of Netflix’s forecast for 24.9 million to 25.7 million, and shy of some analysts’ expectations, according to Reuters[3].

The company now forecasts that it will have about 26.4 million to 27.1 million subscribers by the end of the year, down from a prior estimate of 28 million.

The slowdown shouldn’t come as a surprise, however. Netflix already has a third of the market share of broadband households, and all the while it has to deal with a horde of competitors including Hulu, HBO, Amazon (NASDAQ:AMZN[4]), Comcast (NASDAQ:CMCSA[5]) and Dish Network (NASDAQ:DISH[6]).

Q3 revenues were fairly good, jumping from $822 million to $905 million, which was in line with the Street consensus. However, costs for premium content — a must to fend off those aforementioned competitors — continued to increase, pinching margins.

Netflix posted a Q3 profit of $8 million, or 13 cents a share, which was down from $62 million ($1.16 per share) in the year-ago period, but enough to vault the low 4-cent bar set by analysts.

Netflix has been seeking out growth by pushing into overseas markets including Canada, the U.K. and parts of Latin America. But the efforts have been costly — in fact, Netflix said expansion into Scandinavia will hinder the company and gave a fourth-quarter earnings range between a $13 million loss and a $2 million gain.

In other words, while NFLX might be on the right long-term track, don’t expect the stock to return to its glory days anytime soon, and expect plenty of bumps in the meanwhile.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[7], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.[8]” Follow him on Twitter at @ttaulli[9]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. subscriber growth rate: http://www.reuters.com/article/2012/10/24/us-netflix-earnings-idUSBRE89M1DL20121024
  3. according to Reuters: http://www.reuters.com/article/2012/10/24/us-netflix-earnings-idUSBRE89M1DL20121024
  4. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  5. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  6. DISH: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISH
  7. IPOPlaybook: http://investorplace.com/ipo-playbook/
  8. How to Create the Next Facebook.: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  9. @ttaulli: https://twitter.com/ttaulli

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