Peter Kafka

Recent Posts by Peter Kafka

Netflix Hits Its Numbers, Investors Go Nuts, Reed Hastings Tells Them to Chill Out

orange is the new blackNetflix’s Q3 numbers are what Wall Street was looking for: The company now has 31 million subscribers in the U.S., and another 9 million in the rest of the world. Investors, who either hate Netflix or love Netflix but never feel neutral about it, are pushing the stock up 10 percent to $390 — an all-time high.

Given that Netflix was trading in the $50s just a year ago and is basically the same company plus a few new original shows, it might be useful to have some perspective on the disconnect between the company and its stock.

So CEO Reed Hastings provides it, right at the end of his investor letter:

In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.

Despite the huge swings in our stock price since our 2002 IPO ($8 to $3 to $39 to $8 to $300 to $55 to $330), we’ve continued to grow our membership every year fairly steadily. We do our best to ignore the volatility in our stock. The progress we’ve made over the last 10 years is stunning. We want to make the next 10 years even more remarkable.

(Hear that? That’s the sound of investors ignoring Hastings’ counsel.)

Okay: On to the company itself. As many of my colleagues have noted, Netflix now has more paying subscribers in the U.S. than Time Warner’s HBO — or at least the last numbers that HBO reported.

Unlike previous comparisons some of my colleagues have made between Netflix and, say, Comcast, this one is relevant, since Netflix and HBO are actual competitors who make roughly the same amount of money per paying subscriber. But as both Netflix and HBO have noted in the past, there is a high degree of overlap between HBO and Netflix subscribers: If you have one, you’re likely to have the other.

Meanwhile Netflix, which sort of suggested last quarter that its “Orange Is the New Black” show was doing really well, is much more explicit about it this time around.

The company specifically calls out the show as a great marketing device: “[G]reat press coverage and social buzz generated by” OITNB, as well as the company’s Emmy nominations, helped push up the company’s numbers in the U.S.

But at the same time, Netflix also argues that people spend most of their time on the service watching stuff that isn’t made just for Netflix.

Specifically, Netflix calls out shows like “Breaking Bad” and “The Walking Dead,” where it offers exclusive access to reruns; it says those kind of shows generate “a bigger percentage of overall Netflix viewing.” Which makes sense, because my hunch is Netflix spends more on those kind of shows (for now) than it does on its originals.

But that’s a pretty good summary of the Netflix strategy right now: Use its original shows, and the attention they generate, to help sell the service to new users, and use TV’s reruns to help keep them. Looks like it’s working pretty well, regardless of stock price.


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