By Jamie Barrie N etflix has big plans to be a global entertainment player but second quarter results cast doubt on their plan and their progress. Wall Street was looking for a home run and Netflix delivered a base hit. As a result, over 20 brokerage firms slashed price targets for their stock by as much as $30 per share. The market showed disappointment in subscriber growth numbers over the period of April to June sending the company’s stock down 13.7 percent. Netflix suggests media buzz about a potential price increase of between a $1 or $2 a month might have caused some subscribers to leave. FBR & Co analyst Barton Crockett feels those numbers “suggests the loyalty of Netflix subscribers is thin, which is not helpful for long-term bull arguments.” Crockett went on the add, “Netflix is making long-term commitments for escalating content costs based on its expectations for (subscriber) growth and pricing leverage.” Netflix, the owners of “House of Cards” and “Orange is the New Black,” impressed the analysts by taking on Hollywood directly, changing viewer habits, and defining the “binge watching” craze. Despite showing slowed growth they still have over 83 million subscribers which is 55 million more than they had 4 years ago. Their stock hit a record high in December when it closed at $133.27 per share. Netflix Chief Executive, Reed Hastings urged shareholders to be patient. Hastings promoted “Internet TV is going to be an enormous market,” he said. “We’re very con- fident of that and our competitive position is very strong.” became important to Netflix after US growth slowed. Netflix has now launched in almost every country in the world at a significant cost. The company is adapting their standard offering to International markets
satisfy unique needs of the new areas and expect this effort will drive growth in subscription rates.
Some analysts stayed strong towards Netflix telling their clients to “buy”. They feel once the foreign market growth begins Netflix’s stock will rise again. Analysts are telling their customers that the current weakness represents a great opportunity to get a discount on a valued stock. JP Morgan analysts agreed. Their anticipating Netflix to resolve the issue with pricing changes in the second half of the year and show up in 2017 as larger and more profitable.
It is hard to tell whether Netflix is under performing or if market gurus are over- estimating the potential for growth.
The company says it expects to gain 300,000 subscribers in the United States in the current quarter however, market consultants are suggesting they should be getting 774,000 or more subscribers to meet targets.
Netflix projected capturing 2.85 million new subscribers in markets outside the United States but fell short of their forecast by 850,000 subscribers.
It is these types of discrepancies that may continue to hurt the stock price.
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AUGUST 2016 • SPOTLIGHT ON BUSINESS
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