Netflix (NFLX) shares fell 15% in after-hours trading to $83.90, after closing up 0.4% Monday at $98.81.
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In its letter to investors, Netflix blamed the weak subscriber growth on churn, meaning older customers exiting.
Netflix already has almost 47 million subscribers in the U.S. More than half of Americans say they watch Netflix, which is more than YouTube or any other video service, for that matter.
On Thursday, RBC Capital Markets analyst Mark Mahaney maintained his outperform rating on Netflix with a price target of 140. But based on the stock market’s reaction to Netflix’s announcements in recent months, the company has to at least meet its own 2.5 million-member growth target for investors to reconsider the stock again.
The company had forecast in April that subscriptions would increase by 500,000 in the United States and two million internationally in the second quarter. That’s far below the 0.9 million the company added during the same quarter a year ago, and even below the company’s conservative guidance of 0.5 million for the quarter. The company indicated in the first-quarter of 2016 that its streaming customer base expanded by 6.74 million new subscribers, including 4.51 million worldwide subs and 2.23 million in the U.S. Netflix expects net additions for the current quarter to be down to just 2.5 million. “For Netflix to be the first truly global streaming player in the market makes a lot of sense”.
As Netflix gets more popular, its job gets harder. That’s evidenced by Netflix’s ballooning content obligations, which reached $12.3 billion at the end of the first quarter.
At least one analyst has voiced concerns about next month’s Olympics and the impact that it will have on Netflix.
Just ahead of earnings, different research firms gave their views on the streaming company. That’s despite the network’s part ownership by the aforementioned Time Warner. He has 1.32 million Netflix shares under management.
While Netflix faces some significant challenges in 2016, management seems capable of handling them. Those numbers are also below Wall Street’s projections.
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For these reasons, the analyst asserts, “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t now reflected in its stock price;” especially considering Netflix’s collective domestic and overseas subscriber bases.
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Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.
