Internet television network Netflix late Wednesday smashed Wall Street's target for new subscribers in the second quarter, thanks to its paid-sharing initiative. But Netflix stock fell on lower-than-expected sales and its revenue outlook.
The Los Gatos, Calif.-based company added 5.89 million subscribers in the June quarter. Analysts polled by FactSet had expected Netflix to add 1.81 million subscribers in the period. Netflix ended the second quarter with 238.39 million subscribers worldwide.
Netflix earned $3.29 a share on sales of $8.19 billion in the second quarter. Analysts called for earnings of $2.85 a share on sales of $8.29 billion. On a year-over-year basis, Netflix earnings rose 3% while sales increased 7%.
For the current quarter, Netflix predicted earnings of $3.52 a share on sales of $8.52 billion. That would translate to year-over-year growth of 14% in earnings and 7% in sales. But analysts sought third-quarter earnings of $3.23 a share on sales of $8.66 billion.
Netflix Stock Drops After Report
In after-hours trading on the stock market today, Netflix stock sank 4.3% to 457.25. During the regular session Wednesday, Netflix stock advanced 0.6% to close at 477.59.
Ahead of the earnings report, Wells Fargo analyst Steven Cahall said Netflix stock was "priced to perfection" because of "very high buy-side expectations." He noted that shares would likely pull back if the company didn't meet or exceed estimates on all metrics.
Cahall rates Netflix stock as overweight, or buy, with a price target of 500.
Year to date, Netflix stock had risen 62% through Wednesday's close on enthusiasm for the company's growth initiatives. Those initiatives include its password-sharing crackdown and advertising-supported service offerings.
In a letter to shareholders, Netflix executives said they expect revenue growth to accelerate in the second half of 2023. The company also cited the expanded rollout of its paid-sharing program and its advertising business.
Netflix Stock Ranks First In Group
Popular original movies on Netflix during the second quarter included action films "The Mother" and "Extraction 2." Top-rated series included "The Diplomat," "FUBAR" and the sixth season of "Black Mirror."
Meanwhile, Netflix ranks first out of 21 stocks in IBD's Leisure-Movies & Related industry group, according to IBD Stock Checkup. Netflix stock also has an IBD Composite Rating of 94 out of 99.
IBD's Composite Rating is a blend of key fundamental and technical metrics to help investors gauge a stock's strengths. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
