Why Netflix Is Getting Crushed in Q2

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Netflix Inc. (NASDAQ: NFLX) reported second-quarter financial results after markets closed Monday. The company said that it had $0.85 in earnings per share (EPS) on $3.91 billion in revenue, compared with consensus estimates from Thomson Reuters that called for $0.79 in EPS on $3.94 billion in revenue. The same period of last year had $0.15 in EPS on $2.79 billion in revenue.

During the second quarter, global net adds totaled 5.15 million. In the United States, Netflix added 0.67 million memberships. Internationally, the firm added 4.47 million memberships.

Note that Netflix now has a total of 130.14 million total memberships worldwide.

Looking ahead to the third quarter, the company is calling for $0.68 in EPS on $3.99 billion in revenue. At the same time, the company is expecting to see net adds of 5.0 million. There are consensus estimates calling for $0.73 in EPS on $4.13 billion in revenue.

In the report the company detailed:

US net adds of 0.7m (vs. guidance of 1.2m) were down vs. last year’s Q2-record 1.1m, but consistent with previous Q2 performance (0.5m in Q2’12, 0.6m in Q2’13, 0.6m in Q2’14, 0.9m in Q2’15, and 0.2m in Q2’16). Through the first six months of the year, our US net adds are slightly ahead of last year.

Internationally, 4.5m net additions grew 8% year over year on broad market growth. Currency had a +$65 million impact on international revenue year over year (+13% international ASP growth on a FX neutral basis), but this positive impact was smaller than we had forecast 90 days ago as the US dollar strengthened meaningfully against many currencies since our Q1’18 earnings report in April. As a reminder, we do not hedge our revenue with derivatives.

Shares of Netflix closed Monday at $400.48, with a consensus analyst price target of $382.60 and a 52-week range of $160.02 to $423.21. Following the announcement, the stock was down about 14% at $346.00 in Monday’s after-hours session.

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