After the bell Wednesday, streaming entertainment leader Netflix, Inc. (NFLX) posted in-line Q3 earnings results, and slightly missed estimates on the top line. Netflix posted earnings of 7 cents per share (adjusting for stock-based compensation and other before non-recurring items) on $1.74 billion in revenues.
This compares with the Zacks consensus estimates of 7 cents per share on $1759 million in sales. After-market trading has taken Netflix down 12 percent in the minutes after the announcement.
The initial Q3 earnings "letter to shareholders" refers to the miss as attributable to the transition of collecting for services to chip-based payments not yet realized, called "involuntary churn." Only 0.88 net additions in U.S. streaming subscribers during the quarter was light of expectations, while 2.74 million gained in International streaming was better than expected. Overall, U.S. streaming revenue was below expectations slightly while subscriber numbers of 69.17 million overall was higher than estimates.
Prior to the earnings report, Netflix had been a Zacks Rank #2 (Buy) stock, and year-to-date the shares had been riding up 125 percent. So that this first earnings miss in at least the last 5 quarters allows, late trading is taking NFLX out to the woodshed.
CEO Reed Hastings acknowledged that competition for new content is getting more competitive and expensive, but the company's build-out into new markets — Japan in Q3, and Spain, Portugal and Italy in Q4 — should help keep revenue streams up going forward. But it's the valuation that's now in question as analysts see growth for the company slowing.
Perhaps it really is a glitch relating to "involuntary churn." But traders are placing bets that Netflix is really slowing down, and can no longer support a P/E ratio of roughly 250x forward earnings. That said, following its initial dip into double-digit percentages, NFLX stock is now down around 6 percent in the after-market.
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