NETFLIX’S CHILL
Service probably won’t stumble, but price the stock will pay if and when it does is rising
Investors watching as streaming service hopes to meet earnings expectations,
On Tuesday, when Netflix reports third-quarter earnings, the streaming company will get to prove to investors that its earnings miss last quarter was just a passing blip and not a sign of a more serious slowdown. Analysts, giving Netflix the benefit of the doubt, are expecting the company to hit estimates. If it misses again, though, the tide of opinion may turn.
In July, Netflix reported 5.15 million new subscribers for its second-quarter—a drop from the 7.41 million of the previous quarter and from the 6.2 million the company had forecast. The shares, which had reached an all-time high of $419 (U.S.), tumbled, reaching a low of $317 in August, recovering slightly since then.
Chief Executive Reed Hastings blamed the miss on faulty internal forecasting and “lumpiness in the business.” As he pointed out, this has happened before. But Netflix has always returned to strong growth. Investors are counting on the company to do it again.
Analysts polled by FactSet expect Netflix to post earnings of 68 cents per share for the thirdquarter, a 134% increase from the same quarter last year.
They are also expecting the company to add 5.32 million subscribers, about the same number as last year and slightly above Netflix’s own forecast of 5 million. About 4.35 million of those are expected to come from international markets and 650,000 from the U.S.
Analysts point to the company’s increasingly robust slate of original programming and the service’s expansion abroad. Netflix rolled out 676 hours of original content in the thirdquarter, according to an analy- sis by Cowen, far exceeding its 452 hours in the second-quarter. More than 50 million people also downloaded the Netflix app in the third-quarter, the majority of them in the U.S., Brazil, and India, according to data from SensorTower. In India, downloads increased by 100% compared with the previ- ous quarter. It is true that Netflix has a history of blips and tumbles followed by a return to business as usual. Those bounces have seen the bar getting higher and higher, though. Netflix’s market value exceeded that of Disney this year.
Now Disney, with its newly acquired Fox assets, is coming af- ter Netflix’s streaming business. Amazon, Apple, HBO and others are pouring cash into streaming, too. Netflix has a tremendous lead, but maintaining the pace of growth it has set in recent years will become trickier than ever. The price the stock will pay for even mild disappointments is growing as well.