Netflix (NFLX) Stock: Tumbles On Disappointing Subscriber Growth

Netflix, Inc. NFLX Stock NewsNetflix, Inc. (NASDAQ: NFLX) is tumbling early on in the pre-market hours this morning, and for good reason. The company released its earnings report. While revenue came in line with expectations and earnings beat expectations, subscriber growth proved to be a cause for concern. So, upset investors are sending the stock on a wild ride downward. Today, we’ll talk about:

  • What we saw from the report;
  • what we’re seeing from NFLX stock as a result; and
  • what we’ll be watching for ahead.

NFLX Reports Earnings

As mentioned above, Netflix is having an overwhelmingly rough start to the trading session in the pre-market hours this morning after the company reported its financial results for the second quarter. In a press release issued after-hours yesterday, the company reported its earnings, which proved to be mixed. Here’s what we saw from the report:

  • Profit – In terms of profit, NFLX generated $384 million during the quarter. That works out to per-share earnings in the amount of $0.85, which is well ahead of the FactSet consensus of $0.79 per share. Not to mention, the company saw incredible year over year growth from $66 million, or $0.15 per share in the same quarter of last year.
  • Revenue – In terms of revenue, the company generated $3.91 billion. That also proved to be massive growth from the quarter one year ago, when the company generated revenue of $2.79 billion. However, revenue did fall slightly short of the FactSet consensus of $3.94 billion.
  • Subscriber Growth – While the financial side of the report proved to be positive, the big source of concern came from subscriber growth. During the second quarter, the company only added 5.2 million new streaming subscribers. That’s a massive miss from the 6.2 million estimate that the company provided back in April and a large miss from analyst expectations that the company would add 5.9 million subscribers in the quarter.

In a statement, Reed Hastings, CEO at NFLX, had the following to offer:

We’ve seen this movie of Q2 shortfall before, about two years ago in 2016, and we never did find the explanation to that, other than there is some bumpiness in the business, and continued to perform after that.

What We’re Seeing From The Stock 

One of the first lessons that we learn when we start to dig into the market is that the news causes moves. In the case of Netflix, the news proved to be negative. Sure, earnings was positive and revenue was in line. However, investors expected to see much stronger subscriber growth, and the miss is proving to be a big concern. As a result, the stock is trading on a downtrend as investors show their disappointment. Of course, our partners at Trade Ideas were the first to alert us to the declines. Currently (8:16), NFLX is trading at $350.10 per share after a loss of $50.38 per share or 12.58% thus far today.

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What We’ll Be Watching For Ahead

Moving forward, the CNA Finance team will continue to keep a close eye on NFLX. In particular, we’re interested in watching as the company bounces back from the lows. While subscriber growth is a concern, we believe that this will be nothing more than a bump in the road. Considering the strong earnings and decent revenue, the declines today may be doing nothing more than presenting an opportunity to get in on the future growth of the company. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!

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