Peter Kafka

Recent Posts by Peter Kafka

The Go-Go Growth Days Screech to a Halt at Netflix

A first look at Netflix’s Q3: Revenue of $822 million and earnings $1.16 a share. The Street was expecting around $811 million and about $0.94 a share (bear in mind that “consensus” actually varies depending on whom you ask).

Next up — the crucial subscriber and guidance numbers. Netflix has broken its subscriber totals into streaming-only and DVD-only totals, which will make it a little harder to square with Wall Street expectations.

But here’s the important part: Netflix ended Q3 with 23.8 million total subscribers — a little lower than the 24 million guidance it offered last month. And it thinks that number won’t move much in the next three months: “we do anticipate that total U.S. unique subscribers will be slightly up in Q4.”

Investors hate the news, and are hammering the stock after hours. It’s down more than 20 percent, to around $94 a share. Recall that at one point this summer NFLX touched $300.

Here’s the company’s Q4 guidance — remember that many U.S. subscribers are both DVD and streaming customers:

Netflix says its subscriber problems don’t stem from its Qwikster misstep, but from its summer price hike, which it isn’t backing away from. “Our primary issue is many of our long‐term members felt shocked by the pricing changes, and more of them have expressed that by cancelling Netflix than we expected.”

DVD numbers dropped sharply last quarter, and streaming numbers won’t start growing again until December, the company says.

Okay. So what about all the competition that’s cropping up around Netflix? Are consumers going there? Netflix doesn’t seem to think so. For the first time that I can remember, it makes a point of denigrating Amazon’s streaming video content selection — “we have essentially all of this content on Netflix, and that content contributes a small fraction of Netflix viewing” — and says it doesn’t think many people are using it, period: “This low content selection explains why we have not seen much usage of Amazon Prime in our research.”

And what about Hulu and its Hulu Plus subscription service? Apples and oranges, the company says: “We think most Hulu Plus subs are paying to get current season TV content, which Netflix does not carry, such as this week’s SNL clips … In this sense, Hulu Plus current season TV is just a complementary content model to us, like sports or news subscriptions.”

Netflix also spends time in its shareholder letter explaining the value of exclusive content in online video, indicating that it’s going to continue to spend more on licenses it won’t share with others. That may work out well for the company in the long run but for now Wall Street is going to be hard to placate. Hastings can start trying tonight, during an earnings call that starts at 6 ET.

Here again is Mark Mahaney’s cheatsheet to help you interpret the numbers yourself:


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