Netflix, Inc. (NFLX) Posts Solid Earnings, But Investors Expected More

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On Monday, Netflix, Inc. (NASDAQ:NFLX) reported 630,000 subscribers in the United States fueled by subscribers who signed up to watch “Arrested Development”. This year share price of Netflix, Inc. (NASDAQ:NFLX) has increased by more than twice as investors had confidence about the performance of the stock.

Netflix, Inc. (NFLX) Posts Solid Earnings, But Investors Expected More

Investors expected a bit more

Netflix, Inc. (NASDAQ:NFLX) posted increased number of subscribers compared to the previous year, which is historically its weakest quarter, and overall profit was in line with the projections. However, some of the investors were expecting more profit and, as a result, stock fell 8 percent in after hours trading before it rose again marginally.

Increased expectations from Netflix

In the third quarter, Netflix, Inc. (NASDAQ:NFLX) is looking forward to add 690,000 to 1.49 million subscribers in the United States taking forward its growth story that made it stand amongst one of the most closely watched companies in the media and technology industries. According to analysts, there is a lot expected from CEO Reed Hastings and his team to keep on expanding the subscriber base and create a sort of Netflix club of those who watch Netflix shows and ones who don’t.

Management views

Netflix arranged video conference call and the executives told the interviewers that original shows like “House of Cards” is not affecting the bottom line much, but eventually it will contribute to the total revenue of subscribers and revenues.

“If we do it right, these will turn into real franchises,” Mr. Hastings said.

Ted A. Sarandos, the company’s chief content officer said to investors that it took years for popular channels like HBO and Showtime to gain popularity, which Netflix, Inc. (NASDAQ:NFLX) has done within a few years. He said, “The brand is starting to mean something to viewers, already.”

Hastings said in a statement that business is performing well. Mr. Hastings, in his letter to investors, said that profit in the second quarter was in part contributed by the “Arrested.” He added that the show has been popular with the subscribers and has a strong fan base. However, they maintained that investors should not hope similar popularity of other shows like “Orange Is the New Black,” which is being streamed from this month.

Mr Hastings and chief financial officer, David Wells further said that Netflix, Inc. (NASDAQ:NFLX) will also include broadly appealing feature documentaries and standup comedy specials.

Netflix’s 2Q performance

For the second quarter, Netflix earned revenue of $1.07 billion, in line with the expectation of analyst. The streaming company posted earnings of 49 cents per share outperforming the analyst expectation of 40 cents per share. Netflix reported positive cash flow for the first time in a year as the onetime payment came down.

Apart from the United States, 610,000 subscribers were added from the markets like Britain and Brazil. Internationally, Netflix posted loss but was lower than expected.

Analyst’s take on Netflix results

Michael Pachter, managing director at Wedbush Securities, said on Monday that Netflix, Inc. (NASDAQ:NFLX) has a wide base of subscribers from “Arrested Development” and they saw some decline due to loss of Starz, SpongeBob, James Bond and MTV content. The analyst further said that as per their guidance this growth trend should persist, and he is pessimistic that Netflix will achieve its domestic streaming subscriber growth.

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