Netflix (NFLX) had a terrible, horrible, no good, very bad day. The TV and movie streaming website reported earnings after the market close today and it was a bloodbath. This chart pretty much sums ups the earnings disaster that was Netflix yesterday:
In word form, Netflix actually beat earnings expectations, earning 96 cents per share on 1.2 billion in revenue, ahead of analyst expectations of 93 cents per share on 1.4 billion in revenue during the third quarter. The issue is that Netflix missed the expectations for the amount of subscribers it would add in the past quarter, coming in about 400,000 subscribers short. Netflix blamed the subscriber miss on increasing its subscription cost by $1 per month.
After this news was released yesterday afternoon Netflix shares immediately went into free fall, and were down about 25% ($120) after hours last night. This plummet illustrates just how volatile the market has been recently. I almost never see a stock fall this much after an announcement, unless the company announces imminent bankruptcy. This insane Netflix hit would not have happened in a more stable market, which is why I urged you all to be very cautious before making market moves right now.
Analysts are also blaming the stock fall on Time Warner’s (TWC) announcement that it is offering a standalone HBO streaming subscription. The thing is, I don’t think that’s very relevant here. The HBO news came out at 11 am yesterday, well before earnings, and the stock even rose during the day in between the HBO announcement and the earnings announcement. Plus, the HBO service isn’t a substitute for Netflix since they carry two different sets of content. If you want Game of Thrones you need HBO; if you want House of Cards and Orange is the New Black you need Netflix.
And even if you have both subscriptions, you’ll still save money over having a cable TV subscription (post to come). I pretty much have this setup right now. I have a Netflix subscription and a Comcast package that gives me internet + basic cable + HBO.
So stop blaming Khaleesi, the crazy drop came from an earnings miss on an over-valued stock (the price to earnings ratio was getting quite high at 136). In full disclosure I have 5 shares of Netflix I was hoping to make a quick couple of bucks on after earnings – I figured 5 would be a safe experiment amount but clearly a major fail. I am thinking of picking up a couple more shares at this lower price but will probably wait a couple of weeks on that. When the stock to dipped to $340 in January this year I bought some and it worked out well. I still like Netflix and think it will see more subscribers as 20-somethings move into their own apartments and skip cable.
Finally, let’s close on a happier note. Friends is coming to Netflix January 1st!
They will all be there for you, Jan.1, 2015 https://t.co/EdGNWtFsZl
— Netflix US (@netflix) October 15, 2014