Netflix’s share price declines after narrow miss on revenue, beat on earnings and subscriber growth
Streaming video on demand (SVOD) market leader Netflix reported quarterly earnings after the bell last night, and its share price declined as a result. The reason for the decline is simple: Netflix hasn’t brought in as much revenue as investors would like. Given that the company beat the Street more comfortably on earnings – and then more comfortably again on subscriber growth – a decline in the market might seem like an overreaction. But bear in mind that Netflix’s shares have risen by almost 40% so far this year, and we’re not even three weeks in!
Until last night, Netflix’s share price had appreciated by 38% in just 17 days!
Source: Yahoo Finance
Netflix only missed expectations by a pinch: it reported revenues of $4.19 billion for the quarter against analysts’ expectations of $4.21 billion and its own forecast of $4.20 billion. Investors who were hoping for more can take solace in two things: first, that the company has just announced a rise in its most expensive plan in the US from $11 to $13 (and the US isn’t the only market that will see price hikes), and second, Netflix is going to start cracking down on people ‘sharing’ subscriptions. Both of these measures should see the company squeeze more profit from existing users in the near future.
While Netflix just missed revenue expectations, it easily beat the Street’s guidance on earnings, returning $0.30 per share against consensus estimates of $0.24. And it logged a bigger beat on new paid subscribers. Over the quarter, Netflix added 8.84 million paid streaming subscriptions against analyst expectations of 7.6 million. Driving down into that figure, Netflix beat marginally in the US (where it added 1.53 million viewers against predictions of 1.51 million) and internationally (where its audience grew by 7.31 million. Analysts had expected growth of 6.14 million).
It’s understandable that investors would wobble as Netflix’s share price approaches a 40% rally in 17 days. The question is whether they’ll overreact in the coming weeks and punish the company for what is, undeniably, a fantastic set of results. Netflix is still down from its high in the middle of 2018.
Given the fact that its audience continues to expand rapidly, and original films like Birdbox are now being watched by 80 million people in a month, it’s hard to make a case that the company isn’t outperforming.
Dominion holds Netflix in its Global Trends Ecommerce Fund.
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