Netflix Tumbles After Sales Growth Misses Estimates
Reed Hastings, chief executive officer of NetFlix Inc. Photographer: Ryan Anson/Bloomberg
Netflix Inc. fell the most since October 2008 after the mail-order and online movie-rental service reported second-quarter sales that missed analysts’ estimates.
Netflix slid $16.09, or 13 percent, to $103.56 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest drop since a 16 percent decline on October 7, 2008.
The company reported yesterday that second-quarter sales rose 27 percent to $519.8 million, missing the $525.4 million average of 22 analysts’ estimates compiled by Bloomberg.
Chief Executive Officer Reed Hastings said Netflix will support its fast-growing online business by spending more to get movies and TV shows that can be delivered through the Web to game consoles, Blu-ray players and Apple Inc.’s iPad. Netflix, which offers DVDs by mail, said 61 percent of subscribers use its Web service, up from 55 percent in the first quarter.
“We’ll feel our way along, increasing the amount of exclusive content and balancing the cost and the value in terms of differentiation,” Hastings said in an interview.
Net income advanced 34 percent to $43.5 million, or 80 cents a share, from $32.4 million, or 54 cents, a year earlier, the Los Gatos, California-based company said yesterday in a statement. That beat the 70-cent average of analysts’ estimates.
The company projected third-quarter profit of as much as 74 cents a share on sales of as much as $554 million.
Subscriber Growth
The combination of streaming and mail-order titles has helped the company reach 15 million subscribers at June 30, up 42 percent from a year earlier and 7.4 percent from the first quarter. Netflix raised its subscriber forecast to as many as 18.5 million by year-end, versus an April projection of 17.3 million.
The company spent more on acquiring new customers, $24.37 through June 30, compared to $23.88 the same period a year ago and $21.54 in the first quarter.
Hastings is funneling cash into Netflix’s “Watch Instantly” service as competition heats up with Coinstar Inc.’s Redbox movie-rental vending machines and alternatives such as pay-per-view on cable. Netflix service starts at $8.99 a month for streaming and one DVD at a time. The company said this week that it plans a video-streaming service in Canada, its first foray outside the U.S.
“Netflix streaming is only going to be as good as the content they have,” said Ed Woo, an analyst at Wedbush Morgan Securities in Los Angeles. “They believe they have a significant competitive advantage, but they do not have enough that it’s not wreckable by everyone else trying to get into this space.”
Hulu Threat
Emerging competition includes Hulu Inc.’s $9.99 a month Hulu Plus, which delivers mostly television programs.
Netflix said on July 6 that it plans to show films online owned by Relativity Media LLC. On July 15, Netflix expanded its agreement with Warner Bros. Home Entertainment to add television shows for streaming including “Nip/Tuck.”
“Distribution is becoming a commodity and you need content in order to differentiate,” said Tony Wible, an analyst at Janney Montgomery Scott in Philadelphia, who recommends selling Netflix stock. “There are many players seeking that same content, which will result in inflationary pressure.”
Earnings for the full year will be $2.58 to $2.86 a share, up from a previous projection of $2.41 to $2.63 a share, on an unchanged sales forecast of as much as $2.16 billion, the company said.
To contact the reporters on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net
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