Netflix, Inc. Stock Tanks After Domestic Subscriber Miss

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Netflix released its third quarter earnings report after closing bell tonight, posting earnings of 8 cents per share and streaming-only revenue of $1.58 billion. Analysts had been expecting earnings of 7 cents per share and $1.75 billion in total revenue.

These two revenue numbers are not comparable because the $1.58 billion does not include revenue from the DVD business, which the company did not list on the first page of its release. A few media outlets initially reported $1.58 billion as total revenue but later corrected the number to $1.74 billion. Netflix, Inc. (NASDAQ:NFLX)’s bigger  problem was domestic subscribers, which missed management’s guidance, although they said the transition to chip-based payment cards was to blame for that miss.

Netflix plunges after hours

Netflix, Inc. (NASDAQ:NFLX) reported $1.58 billion in total streaming revenue, including $1.06 billion in domestic streaming revenue and $517 million in international streaming revenue. Analysts had been expecting $1.07 billion in domestic streaming revenue, $523 million in international streaming revenue, and $157 million in revenue from the domestic DVD rental business.

Free cash flow was negative during the quarter at -$252 million as the company continued its global expansion efforts. Gross debt was $2.4 billion at the end of the quarter, and it had $2.6 billion in cash and cash equivalents at the end of the quarter.

Netflix misses domestic subscriber growth outlook

The video streaming provider added 3.62 million subscribers during the third quarter, bringing its total to 69.17 million, compared to last year’s growth of 3.02 million adds during the third quarter. Management had guided for adds of 3.55 million subscribers. Domestically, Netflix added 880,000 subscribers in the U.S., compared to 980,000 last year. Analysts had been looking for Netflix to add 1.25 million subscribers.

Management had guided for 1.15 million net adds in the U.S. They cited the transition to chip-based credit and debit cards as the reason for their over-forecast in the U.S. because the miss was because of involuntary churn caused by the company’s inability to charge customers’ credit and debit cards.

Netflix, Inc. (NASDAQ:NFLX) added 2.74 million international subscribers during the third quarter, compared to last year’s 2.04 million and the guide of 2.4 million. Analysts had been expecting 2.45 million subscriber adds. Excluding currency headwinds, management said the company’s international average selling price increased 6% year over year and was aided by plan mix.

Netflix provides guidance

For the fourth quarter, Netflix management expects earnings to be about 2 cents per share. They’re projecting $1.667 billion in total streaming revenue for the fourth quarter with 5.15 million net subscriber adds. They expect 1.65 million net domestic subscriber adds and 3.5 million international adds.

Netflix, Inc. (NASDAQ:NFLX) shares plunged by more than 14% in after-hours trading but then started to recover part of the way. As of this writing, shares were down 6.65% at $102.90 per share.

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