Peter Kafka

Recent Posts by Peter Kafka

Netflix Says It’s Back to Boom Times. Wall Street Isn’t Convinced.

Netflix says 2012 is going to be great. Wall Street remembers 2011.

And that’s the explanation for last night’s stock swoon, which followed a solid-to-good Q1 earnings report from the video company.

Specifically, Wall Street doesn’t believe Reed Hastings’s prediction that his company will add seven million customers to its U.S. streaming-video service this year. For a couple reasons:

  • That’s the same growth rate that Netflix had back in 2010. But back then, Netflix was growing from a much smaller base. At least as important: Back then, it had the subscription streaming-video business more or less to itself. Now it is facing competition from Hulu, Amazon and Comcast, with more — like a Redbox/Verizon service — on the way.
  • Hastings says Netflix can pull this off, even though next quarter’s growth will be much slower than Wall Street was expecting. Netflix has a complicated explanation for this, involving “seasonality” and the size of the company’s subscriber base. Short version: Trust us, it will all work out in the end.

These are the kind of arguments that Hastings used to win, because Netflix was one of tech and media’s most amazing growth stories, and Hastings had the aura of a man who could see around corners.

But 2011 changed all that. Now, if Hastings tells Wall Street that he can see the future, he’s going to get plenty of pushback. Yesterday’s conference call was dominated by questions about his 2012 growth predictions. The first one set the tone: “Why are you so confident?”

That one will take about eight months to explain. Let’s see if investors are that patient.

 


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