Netflix stock is getting totaled, down 20%, shaving almost $US100 off its stock price.
On Wednesday the company reported subscriber growth in the third quarter that was much lower than expected. It also lowered its expectations for the fourth quarter.
Netflix added 2 million international subscribers versus expectations of 2.36 million and 975,000 domestic streaming subscribers versus expectations of 1.33 million.
To get a true grasp of how brutal this is, check out the stock’s five-day chart.
Netflix CEO Reed Hastings blamed the subscriber drop-off on a $US1 price increase the company instituted back this spring.
“Our best sense is it’s an effect of our price increase back in May,” Hastings said Wednesday night in an interview with CNBC. “With a little bit higher prices, you get a little bit fewer subscribers. So that’s our sense of it. But we can’t be 100% sure. We had so much benefit from Orange in Q2 and the early Q3, but that’s what we think.”
Netflix was also hurt by the announcement that HBO would create its own online streaming subscriber service. For Netflix it means a juggernaut is entering the game. HBO is bigger internationally than Netflix. Netflix has 53 million members worldwide to HBO’s 120 million.
Analysts up and down Wall Street are cutting their expectations to match Netflix’s numbers.
Even the most bullish analysts, like Raymond James’ Aaron Kessler and Justin Patterson, are guiding down dramatically for next year (while still sounding optimistic).
“Netflix guided 4Q14 EPS to $US0.44 vs. our and the consensus prior estimates of $US0.95 and $US0.86, respectively, primarily due to higher international expansion costs. We note that Netflix remains optimistic on recent international launches, citing healthy viewing hours in France and Germany … For 2014, our revenue estimate increases by 0.3% and our GAAP EPS estimate decreases by 11%. For 2015, our revenue estimate decreases by 1.7% (slower sub growth assumptions), while our GAAP EPS estimate declines by 30% (due largely to expectations for higher international costs).”
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