Netflix down more than 6% on subscriber questions
Netflix shares fell sharply Wednesday, as investor enthusiasm for 2015’s market leader reversed under a global equity selloff and lingering concerns about U.S. subscriber growth.
Shares of Netflix (NFLX[1]) were down more than 6% to $101.30 at noon Wednesday after falling below the $100 mark in morning trading. The S&P 500 and Nasdaq 100 dropped 3% Wednesday[2] in a rout hinged to worries about the global economy that left few stocks unscathed.
Netflix shares had risen 8% in after-hours trading Tuesday to $116.97 after the company posted adjusted earnings of 7 cents per share[3] that beat expectations by 5 cents per share, based on S&P Capital IQ Consensus Estimates.
Investors may be concerned about slowing U.S. subscriber growth and Netflix’s need to spend to grow its new global markets. The service added 1.56 million new U.S. subscribers, narrowly missing its target of 1.65 million. In the same quarter of 2014, Netflix added 1.9 million new subscribers.
The company expects negative free cash flow of $1 billion each of the next two years as it continues to expand and spend on new original content. “Those are ominous numbers,” said Michael Olson, equity analyst at Piper Jaffray, on CNBC Wednesday.
“I can understand why many investors are nervous about that kind of spend and that kind of continued negative free cash flow. … You do have to take a little bit of a leap of faith that they are going to grow internationally and that will be there on the other side to make good on some of this spend.”
In a note issued Wednesday, Olson maintained a Neutral recommendation on Netflix with a target price of $122, taking a “wait and see approach to some of the new markets they are getting into,” he said.
Another hurdle facing the streaming video leader is an upcoming price hike for some long-time subscribers. Back in October 2015, Netflix raised the price of its most popular plan — granting subscribers two simultaneous HD streams — to $9.99 from $8.99. At the time, current subscribers were grandfathered in at a $7.99 monthly rate, but that benefit ends starting in April. “Given these members have been with us at least 2 years, we expect only slightly elevated churn,” Netflix CEO Reed Hastings said in a letter to shareholders[4] Tuesday.
‘TV LIKE GOD INTENDED’
Hastings also fired back at NBC exec Alan Wurtzel who last week revealed some viewership data during a Television Critics Association session. Wurtzel said audiences of ages 18-49 for Netflix shows such as Jessica Jones did not match that of NBC broadcast series such as BlindSpot. After a new Netflix series arrives, viewers binge and then“everyone goes back to watching (broadcast) TV like God intended,” he said, as reported by Deadline Hollywood[5].
Hastings countered saying in the note that “our investors are not as sure of God’s intentions for TV, and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years.”
During a conference call after Netflix released its earnings, Chief Content Officer Ted Sarandos when asked about NBC’s attack said that the network “might just be putting up a shiny object to deflect … (from) what is going on in their own networks these days.”
Follow Mike Snider on Twitter: @MikeSnider[6]
References
- ^ NFLX (www.usatoday.com)
- ^ The S&P 500 and Nasdaq 100 dropped 3% Wednesday (www.usatoday.com)
- ^ after the company posted adjusted earnings of 7 cents per share (www.usatoday.com)
- ^ letter to shareholders (ir.netflix.com)
- ^ Deadline Hollywood (deadline.com)
- ^ @MikeSnider (twitter.com)