Netflix (NFLX) Stock Pummeled after Lower Subscription Growth

Shares of Netflix Inc. (NFLX) were down -115.59 or -25.77 percent to $333.00 per share in Thursday's premarket, after the company announced earnings yesterday following the market close. While earnings were better than expected, revenue and new subscriptions failed to meet analyst forecasts. Netflix stock closed at $448.59 per share, off -0.53 or -0.12 percent in Wednesday's regular trading session.

Los Gatos, California based Netflix Inc. is an Internet subscription service offering subscribers unlimited streaming television shows and movies that can be watched on television sets, computers or on mobile devices.
The company currently operates in North and South America, the United Kingdom, the Caribbean, Scandinavia, the Netherlands, and Iceland. With this week's expansion Netflix will have operations in 47 countries including six new markets in Western Europe.

Netflix reported earnings of $0.96 per share on $1.22 billion in revenue in the company's fiscal third quarter. The analyst consensus was for the company to earn $0.92 per share on revenue of $1.41 billion. Nevertheless, Netflix said it had added over three million new subscribers in the quarter compared to their own estimate of +3.69 million.

The company had $877 million in streaming revenue from the United States, which was in line with their expectations and a +25 percent increase over the same quarter one year ago. Revenue from international operations came to $346 million, also in line with their forecast and +89 percent better than one year ago, thanks to opening six new markets in Europe.

New customers in the United States came to +980,000 compared to +1.29 million in 2013's third quarter, with a little over three million new subscriptions total worldwide. Netflix had forecast it would add +3.79 million new subscriptions in the quarter.

The slowdown in new subscribers was attributed in large part to a $1 increase to subscription prices the company imposed on customers about five months ago. In an interview, Netflix Chief Executive Reed Hastings told the Associated Press that, "There is slightly more (pricing) sensitivity than we thought . Netflix stock plunged -$117.59 per share after the news in afterhours trading, a decline of -26 percent.

A similar situation happened to Netflix in 2011. The company increased prices by +66 percent for customers subscribing to the company's mail option for DVDs, in addition to raising rates for its Internet viewers. Netflix lost 800,000 subscribers and the company's stock proceeded to lose over 80 percent in the next year.

In a letter to shareholders, CEO Reed Hastings and CFO David Wells told investors that, "As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago. Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher-adoption markets such as the U.S. The executives also stated that, "We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing .

After losing a quarter of its value, Netflix stock appears to have stabilized above $325.00 per share. With today's price action, Netflix stock could be on its way to test its yearly low of $299.50.

Other News About Netflix
The entire 'Friends' series is coming to Netflix next year
Netflix lands series after a new deal with Warner Bros.
Netflix: Will continue to fight Comcast deal for Time Warner Cable
Netflix said it has no intention of dropping the fight for Time Warner Cable.

Other Stocks in the News
Time Warner Cable shareholders OK Comcast deal
Shareholders approve the $45.2 billion acquisition by Comcast.
Goldman Sachs profit gets big boost from bond market pickup
Company reports 50 percent rise in third quarter profits.

Published on Oct 16, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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