Netflix, Inc. (NASDAQ:NFLX) is paying for last night’s big disappointment in subscriber additions. Wedbush analysts believe shares will fall much further than they already have, and they’ve maintained their Underperform rating and $245 per share price target on the video streaming company.
Netflix disappoints on subscribers
In their report dated Oct. 16, Wedbush analysts Michael Pachter, Nick McKay and Alicia Reese said Netflix missed their projections as well. The company reported .98 million net domestic subscribers, far below their 1.4 million estimate and Netflix’s own guidance of 1.33 million and last year’s 1.29 million. Management said their price increase probably contributed to the slowing growth.
Internationally, Netflix added 2.04 million net subscribers, compared to Wedbush’s estimate of 2.4 million and the company’s guidance of 2.36 million and last year’s 1.44 million.
Netflix disappoints on guidance
For the fourth quarter, Netflix, Inc. (NASDAQ:NFLX) expects to add 1.85 million domestic streaming subscribers, which was lower than Pachter and company’s estimate of 2 million and last year’s 2.33 million. Again, the higher pricing is expected to impact that number.
The company’s earnings per share guidance was also greatly below expectations, as it took a hit for all the international expanding it is doing. Netflix expects earnings to be around 44 cents, compared to the consensus estimate of 85 cents and 96 cents in the same quarter a year ago.
In the middle of last month, the company launched in France, Germany and other parts of Western Europe, so cost of marketing and revenues will rise to about $483 million in the current quarter. Netflix said it expects a loss of $95 million, which the Wedbush team said is the biggest since the fourth quarter of 2012.
Netflix disappoints in free cash flow
The September quarter was also the first time since the first quarter of 2012 in which Netflix recorded negative free cash flow. The Wedbush team noted, “the delta between net income and free cash flow continues to grow.”
Netflix, Inc. (NASDAQ:NFLX) reported a -$74 million free cash flow in the quarter. In the previous quarter, free cash flow was $16 million, widening the gap between free cash flow and net income to $133 million, which the Wedbush analysts say is a new high. They also say that net income has been higher than free cash flow in every quarter going back to the third quarter of 2012, placing the “combined delta” at $448 million.