Shares of Netflix (ticker: NFLX), one of the most heavily followed growth stocks on Wall Street, fell more than 15 percent in after-hours trading on Monday after the streaming media company reported that it missed revenue projections and projected growth numbers for its subscriber base for the second quarter.
Netflix posted earnings per share of 5 cents on revenue of $1.97 billion. Analysts expected the video-streaming service to post second-quarter earnings of 2 cents per share, down 66 percent from the 6 cents per share it earned in the year-ago period. Analysts expected revenue to rise 28.4 percent to $2.11 billion.
“We are more concerned, and also understand, that the Q3’s guidance on subscribers, 2.3 million, which is much lower than the street’s estimates of 774,000 U.S. and 2.85 million international subscribers,” says K C Ma, professor of finance at Stetson University. “It appears that NFLX has hit a wall of higher pricing and underestimate the price elasticity of their users.”
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When Netflix issued its own internal forecasts alongside its first-quarter results, it projected second quarter net subscriber additions of 2.5 million — 500,000 coming domestically and the other 2 million from overseas. At the time, even those projections disappointed and shares instantly plunged more than 10 percent on the news. Monday, it was severe disappointment again as Netflix failed to match even those low expectations, posting net additions of just 1.68 million members — 160,000 from the U.S. and 1.52 million from abroad.
This is a pivotal year for Netflix and NFLX stock as it tries to execute on its ambitious global expansion plans. In January alone, Netflix moved into 130 new countries, and international growth is widely seen by investors as the key to sustained growth as the U.S. market saturates.
Part of the concern going into Netflix’s second-quarter surrounded the extent to which a price hike, which would go into effect for millions of customers in May and June, would affect subscriber growth. The hike takes the rate of the standard HD plan to $9.99 per month from either $7.99 per month or $8.99 per month, depending on when users joined.
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For NFLX stock, keeping up with the high expectations of the market is a necessity. Netflix was the top-performing name in the entire Standard & Poor’s 500 index in 2015, with shares soaring 135 percent. But a sky-high valuation has been tough for the stock to live up to, as shares had fallen 13 percent for the year even before Monday’s after-hours collapse.
Even after that stumble, the price-earnings ratio for NFLX stock going into earnings today was 341 — well above the ratio of the S&P, which currently hovers near 25.
Amazon.com (AMZN), among other competitors like Hulu and HBOGo, is trying to battle Netflix for subscribers as ” cord-cutting” goes mainstream. But Netflix is taking steps of its own to improve its service and tailor its offerings to its userbase.
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For instance, the streaming video leader recently launched a feature called “Flixtapes” that lets users create a mixtape-like assemblage of their favorite programming, ideally around a certain theme. Netflix hopes that the feature will allow the service to better predict the types of content its users will like given a certain taste profile.
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Netflix (NFLX) Stock Plunges After Subscriber Whiff originally appeared on usnews.com
