Netflix (NASDAQ: NFLX) is having more than just a rough time.
ETF Daily is reporting that Netflix Inc. stock plummeted more than 25 percent in after hours trading today (Wednesday) after the company’s Q3 earnings report showed lackluster subscriber growth.
NFLX added just 980,000 U.S. subscribers during the quarter, well below analysts’ prediction of 1.37 million. Globally, the company added 3.02 million subscribers. Netflix had previously predicted 3.69 million new global subscribers.
“This quarter we over-forecasted membership growth,” the company said in a letter to shareholders. “We’ll continue to give you our internal forecast for the current quarter, and it will be high some of the time and low other times.”
Netflix did report Q3 earnings per share (EPS) of $0.96. That beat estimates of $0.93 per share. However, revenue came in at just $1.22 billion, which was also below expectations of $1.41 billion.
Following the after-hours drop, NFLX stock has now dipped 31.5 percent from the 52-week high it hit in September.
The sell-off wasn’t the first bad news of the day for Netflix. Earlier, NFLX shares dropped 4 percent after HBO announced its own standalone streaming service. It will be available in 2015 and adds another direct competitor for Netflix.
Netflix announced that it added just 2 million international subscribers this quarter. That was well below the 2.39 million projected. The miss was especially brutal considering that in mid-September, Netflix launched in France, Germany, Austria, Switzerland, Belgium, and Luxembourg.
Money Morning is reporting that all is not bad with NFLX. Last quarter, Netflix added 1.7 million members to its domestic and international streaming business. That pushed Netflix over the 50 million member mark for the first time.
“Exclusive content” is another area that bears watching. Netflix already has powerhouse programs like House of Cards and Orange Is the New Black, and it recently expanded its offerings. This month, Netflix announced a partnership with Adam Sandler for four feature-length films. The company also plans to remake the 2000 film Crouching Tiger, Hidden Dragon. Any further announcements about exclusive content would be a boost for shareholders.
While those are the first things for investors to look for tonight, there will be a much more important number in the report. In fact, this figure is a huge long-term catalyst for NFLX stock.
Missing domestic subscriber growth estimates is a bad sign, but missing internationally is even worse for shareholders – especially after the company has been trumpeting the importance of the European market.
“International subscriber growth is the most important variable driving stock performance for the foreseeable future,” Morgan Stanley analyst Benjamin Swinburne said in a research note.
Revenue isn’t the only reason subscriber growth is so important to Netflix. The bigger the company’s user base, the more attractive Netflix is to content producers.
If NFLX is able to capture more subscribers in the international market, they may be able to increase their amount of self-produced content. This being their first foray into the international market, it may take some time for their plans to come to fruition.
[Image courtesy of Bidness ETC.]