How Net Adds Are Sinking Netflix
Netflix reported disappointing third-quarter financial results after the markets closed on Wednesday.
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Netflix Inc. (NASDAQ: NFLX) reported its third-quarter financial results after the markets closed on Wednesday. The online streaming giant had $0.07 in earnings per share (EPS) on $1.74 billion in revenue, compared to consensus estimates from Thomson Reuters that called for $0.08 in EPS on $1.75 billion in revenue. The same period from the previous year had $0.14 in EPS on $1.41 billion in revenue.
Global membership grew to 69.17 million members, up 3.62 million, compared to prior year growth of 3.02 million, and a forecast of 3.55 million.
The company added 0.88 million new U.S. members in the quarter compared to 0.98 million last year and a consensus forecast of 1.15 million, marking the fourth consecutive year Netflix has added about 6 million members in the United States. International net additions totaled 2.74 million compared to 2.04 million in the prior year and a 2.40 million forecast.
As Netflix had already indicated in the months prior, international contribution losses will grow sequentially into the fourth quarter as it launches into Spain, Italy and Portugal. Also the company had announced its expansion into South Korea, Hong Kong, Taiwan and Singapore in early 2016. The plan for this online streaming giant remains to run around break-even through 2016 and to deliver material profits thereafter.
Some are hailing this as the first earnings miss from Netflix, but on the other hand could this create a buy and hold opportunity for the stock considering its break-even plan?
Free cash flow in the third quarter totaled a negative $252 million, a larger shortfall than the $229 million posted in the second quarter, due to the working capital intensity of Netflix’s investment in originals, which results in higher cash spent upfront relative to content amortization. On the books, the company had cash, equivalents and short-term investments valued at $2.61 billion compared to $1.61 billion at the end of December 2014.
Shares of Netflix closed Wednesday up 0.5% at $110.23, with a consensus analyst price target of $121.12 and a 52-week trading range of $45.08 to $129.29. Following the release of the earnings report, shares were down 7% at $102.50 in the after-hours trading session.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
