Netflix Shares Plunge on Guarded Subscriber Outlook

Tuesday, 24 Jul 2012 05:41 PM

 

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Shares of Netflix Inc., the world’s largest video-subscription service, fell as much as 16 percent in extended trading Tuesday after the company said it may not add as many users this year as predicted.

The summer Olympics are likely to hamper efforts to sign up new customers, Chief Executive Officer Reed Hastings said today in his quarterly letter to investors. The full year-goal of adding 7 million new U.S. users may be “challenging” if this quarter’s most optimistic targets aren’t met, he said.

Analysts had been skeptical of the company’s goal for new customers, which hinges on accelerating signups in the second half of the year. Michael Pachter, a Wedbush Securities analyst in Los Angeles, called the full-year forecast “unrealistic” in a July 19 note to investors.

Hastings also predicted a fourth-quarter loss because of costs to expand into a new European market.

Netflix, based in Los Gatos, California, declined as much as 16 percent to $67.69 in extended trading. It gained 0.6 percent to $80.39 at the close in New York.

Hastings forecasts 1 million to 1.8 million new domestic accounts this quarter. So far, additions are pacing very near the 1.8 million mark. The summer Olympics starting this month “are likely to have a negative impact on Netflix viewing and signups,” he said.

Quarterly Forecast

Netflix predicts sales of $890 million to $911 million this quarter, with results ranging from a loss of $6 million, or 10 cents a share, to a profit of $8 million, or 14 cents. Analysts see sales of $907.5 million and profit of 11 cents, the average of 26 estimates.

Second-quarter net income totaled $6.16 million, or 11 cents a share, Netflix said in a statement on its website. That followed a loss in the first three months of 2012 from Latin America and U.K. expansion costs.

Sales for the quarter rose 13 percent to $889.2 million from a year ago, beating the $888.9 million average of 26 analysts’ estimates compiled by Bloomberg.

Netflix had predicted second-quarter sales of as much as $895 million, with results ranging from a loss of $6 million, or 10 cents a share, to profit of $8 million, or 14 cents. Analysts predicted profit of 5 cents a share, the average of 26 estimates.

For the second quarter, total domestic subscribers rose 530,000, in line with the April Netflix forecast for 190,000 to 790,000 and bringing the total to 23.9 million. Netflix added 1.74 million new online customers in the first quarter.

For the year, six analysts surveyed by Bloomberg forecast subscriber growth of 4.2 million to 7 million, with an average of 5.58 million, as the company faces new competition from Verizon Communications Inc.’s online venture with Coinstar Inc.’s Redbox.

© Copyright 2014 Bloomberg News. All rights reserved.

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