Netflix stock plummets 25% after reporting fewer subs

Faith Merino · July 25, 2012 · Short URL:

Revenue was on par, but fewer subscribers than expected resulted in tanking shares

Netflix stock dropped a whopping 25% Wednesday after the company’s quarterly earnings report showed breakeven profits and fewer than expected subscribers.  Netflix was trading at $60 as of 11:15 am PT, compared to its Tuesday closing price of $80.39.

With $889 million in revenues, Netflix met Street expectations spot on, but the company reported fewer domestic and international subscribers than analysts had expected.  JP Morgan’s Doug Anmuth, for example, was expecting 24.05 million domestic subscribers and 3.9 million international subscribers, but Netflix disappointed with 23.94 million domestic and 3.6 million international.

The good news is that after suffering a $5 million loss last quarter, Netflix is now back to profitability, but not by much.  The company reported $6 million in profits, compared to profits of $68 million this time last year.

Netflix is hoping to add seven million domestic subscribers by the end of the year, but Anmuth doesn’t see that happening.

“Netflix will not have the same boost in the quarter from the iPhone, and the Olympics could be a headwind,” he wrote in a research note.

Anmuth estimates that Netflix will add 5.94 million domestic subscribers by the end of the fiscal year.

In terms of content, Netflix has been focusing most of its energy on original TV series and exclusive deals.  This quarter, Netflix signed a multi-year exclusive agreement with Warner Bros. to license previous seasons of “Pretty Little Liars” and “The Lying Game.”

Netflix has a fairly impressive TV selection, which includes series like “Mad Men,” “Breaking Bad,” and “The Walking Dead” (Michonne!!).  But the company is notably missing shows from HBO.

“While we compete for content and viewing time with HBO, it is also possible we will find opportunities to work together—just as we do with other networks,” the company said in a letter to shareholders.  “Consumers who are passionate about movies and TV shows are quite willing to subscribe to multiple services.”

Earlier this month, CEO Reed Hastings announced in a Facebook post that Netflix subscribers watched over one billion hours of content in a single month for the first time in June.

“We’ve found the gripping, serialized one-hour drama, such as ‘Heroes,’ ‘Lost,’ ‘Dexter,’ and ‘Weeds,’ has become a very important part of the Netflix experience and over the years, we’ve been able to add these shows from many different channels, with the notable exception of HBO,” Sarandos wrote in a blog post on the Netflix website last year.  “With David Fincher’s unique vision, the incredible acting skills of Oscar winner Kevin Spacey, and a great and timeless story of power, corruption and lies, we think ‘House of Cards’ will become a big hit among Netflix members and thus, represents a manageable risk.”

The new drama is scheduled to premiere on Netflix later this year.


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