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Netflix, Inc. Tanks After Subscribers Miss Estimates

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Netflix, Inc. (NASDAQ:NFLX) released its latest earnings reports after closing bell tonight, posting earnings of 9 cents per share. Analysts had been expecting earnings of 3 cents per share on $2.11 billion in revenue. Streaming revenue amounted to $1.966 billion, although this is not comparable because it does not include DVD revenues. The company did not include the total revenue number and historically has made it difficult to find this number. Some media outlets are reporting that it is $2.11 billion, in line with consensus.

In last year’s second quarter, Netflix posted earnings of 6 cents per share and streaming revenue of $1.481 billion.

Netflix misses widely on subscribers

Netflix added 1.52 million international streaming subscribers during the second quarter, coming up far short of Wall Street’s estimate of 2.15 million. The company added only 160,000 U.S. streaming subscribers during the quarter, which was far short of the 532,000 domestic net adds Wall Street wanted to see. In all, the company added only 1.7 million subscribers, coming up far short of even its own projection of 2.5 million. Netflix had previously guided for 500,000 domestic adds.

Management said the churn rate “ticked up slightly” and blamed media reports about the un-grandfathering of long-time subscribers. They claim consumers perceived the reports as being about a new price increase instead of the “completion of two years of grandfathering.” They added that the churn among subscribers who were actually un-grandfathered was “modest” and about as they expected. They also said the current three-tier pricing plan is working well for Netflix and that “gross additions remain healthy.”

Netflix’s operating income was $70 million, while its operating margin was 3.3%. Net income amounted to $41 million, while adjusted EBITDA was $129 million. Free cash flow was in the negative at -$254 million. Management had projected operating income of $47 million and net income of $9 million. They attributed the large difference to content and other costs being lower than expected.

Netflix guidance also short of expectations

Netflix said for the third quarter, it expects total streaming revenue of $2.155 billion and 300,000 domestic net adds. The company expects 2 million net new international subscribers and earnings of 5 cents per share, including the DVD business.

Shares of Netflix plunged by as much as 15.28% to $83.66 in after-hours trading.

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