Netflix stock shuddered Thursday after the streaming video leader missed expectations for second-quarter revenue as well as its forecast for third-quarter sales. The sales disappointment came even though Netflix smashed expectations for new subscribers.
On the stock market today, Netflix stock plunged 8.4% to close at 437.42.
Netflix late Wednesday said it earned $3.29 a share on sales of $8.19 billion in the June quarter. Analysts had predicted 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 forecast earnings of $3.52 a share on sales of $8.52 billion. But analysts sought third-quarter earnings of $3.23 a share on sales of $8.66 billion. Netflix's outlook would translate to year-over-year growth of 14% in earnings and 7% in sales.
Netflix Stock News: Subscriber Gains
The Los Gatos, Calif.-based company added 5.89 million subscribers in the June quarter, beating views for a gain of 1.81 million. Netflix ended the second quarter with 238.39 million subscribers worldwide.
The company's paid-sharing program, an initiative to crack down on free account sharing, fueled the jump in new subscribers. Netflix rolled out its paid account-sharing program in more than 100 countries, including the U.S., in May.
The biggest knock on Netflix's results was its 1% decline in average revenue per membership on a foreign-exchange neutral basis, UBS analyst John Hodulik said in a note to clients. Also, Netflix expects average revenue per membership to be flat to slightly down in the third quarter, he said.
Netflix attributed the decrease to a higher mix of subscribers from countries with cheaper service plans and to members choosing less expensive plans.
Upgrades, Price Hikes For Netflix Shares
Netflix's second-quarter results show that its efforts to convert account "borrowers" into paying customers has been a success, Morgan Stanley analyst Benjamin Swinburne said in his note to clients. He rates Netflix stock as equal-weight, or neutral.
Meanwhile, Evercore ISI analyst Mark Mahaney reiterated his outperform rating on Netflix stock and upped his price target to 550 from 400.
Netflix's paid-sharing initiative and advertising-supported service offerings "will drive a material reacceleration in revenue and EPS (earnings per share) growth," Mahaney said in a note.
Still, many Wall Street analysts were enthused by Netflix's better-than-expected profitability and subscriber growth. At least 11 investment firms upped their price targets on Netflix stock following the earnings report.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
