Netflix Disappoints Investors Despite Excellent Earnings

NetflixPerhaps expectations were unrealistic to begin with, but despite a quadrupling of profits investors were disappointed that Netflix did not sign-up as many new subscribers as they had hoped.

The value of Netflix’s stock has almost tripled since the onset of 2013 on the hopes investors have of the flow of new subscribers to the company. However, despite the revival of the hit comedy “Arrested Development” after a seven-year hiatus, not that many new subscribers joined.

The Netflix login numbers were not unimpressive. The company enjoyed a subscriber increase of 630,000 from the US during the second quarter, even higher than the mid-range target set by Netflix management in April. Unfortunately expectations were raised by management who also declared in April that the number of new subscribers could reach as many as 880,000, setting the stage for disappointment.

“It was a very good quarter by most standards, but that doesn’t cut it when your stock has risen by 200 percent,” said Pacific Crest analyst Andy Hargeaves.

CEO of Netflix Reed Hastings explained in a letter to shareholders that the Memorial Day weekend release of 15 new “Arrested Development” episodes caused a “small but noticeable bump” in the number of subscribers.

In total, so far this year, Netflix has added 2.7 million subscribers. Last year at this time the number of new subscribers was only 2.5 million.

“We are feeling quite good about the business,” Hastings assured investors during an unusual live video presentation.

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Michelle Grathers

About Michelle Grathers

Michelle Grathers is an international tax expert. She has consulted for a variety of firms and high net worth individuals on all tax- and legal-related issues. She also helps new companies develop payroll services, statutory audits and mergers and acquisitions. Contact Michelle at michelle[at]businessdistrict.com