Netflix (NFLX) Stock Pummeled After Disappointing Growth Forecast

Shares of Netflix Inc. (NFLX) were trading off -9.27 or -8.55 percent to $99.13 per share in Tuesday’s premarket after the company issued weaker than expected guidance for subscriber growth for the company’s second quarter yesterday after the market close. Netflix stock closed at $108.40, down -3.11 or -2.79 percent in Monday’s regular trading session.

Los Gatos, California based Netflix Inc. was founded in 1997 and  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. Netflix expanded its subscription base significantly in 2015, expanding its service to 130 new countries in January, and as of April 18th of this year, the company reported 81 million subscribers worldwide, which includes over 46 million subscribers in the United States.

During the company’s first quarter of 2016, Netflix added 6.74 million subscribers, with 2.23 million in the United States and 4.51 million in foreign markets, which brought the total subscription base abroad and domestically to 81 million. The amount of new subscribers beat the company’s previous forecast for the first quarter of 5.59 million made in last year’s fourth quarter.

Nevertheless, Netflix reported operating income had declined to $49 million compared to $97 million in the same period one year ago, as the company continues to invest in markets abroad. U.S. revenue increased +18 percent year on year with U.S. contribution profit totaling $413 million or a 35.5 percent margin versus 31.7 percent last year.

U.S. results reflected a +14 percent increase in average paid memberships and a +3 percent increase in average revenue per user or ARPU. International revenue increased +57 percent year on year, which included a negative currency impact of  -$82 million on a year on year basis. With the exclusion of currency impact, international ARPU increased +7 percent year on year.

For the company’s second quarter, Netflix is forecasting the addition of 2.5 million members with 500,000 in the United States and 2.0 million internationally. The U.S. forecast is in line with previous years, however the international forecast is far below 2015’s second quarter, when the company added +2.37 million new subscribers, double the 1.12 million it had gained in the previous year’s second quarter.  Netflix cited its launch in Australia and New Zealand, which caused a significant growth spike in 2015’s second quarter, and pent up demand that, according to the company, will not continue in 2016’s second quarter.

David Wells, Netflix Chief Financial Officer said in an earnings interview after the company released earnings, that, “You haven’t yet seen a normalized pattern of growth from us, in terms of a year-on-year growth expectations across our international markets because we have been layering on new markets as we go. We are mindful of the fact that we have got these large blooms of launches … that aren’t going to continue forward because they are addressing pent up demand.”

Netflix stock was off by -3 percent in yesterday’s regular trading session. The stock was pressured by news of’s (AMZN) introduction of a monthly streaming video service that will be cheaper than Netflix. After the release of the company’s second quarter guidance after the market close, shares dropped as much as -12 percent to $95 per share.

Other News About NFLX

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Netflix is out-HBOing HBO in exclusive shows - so far

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Published on Apr 19, 2016
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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