Why Netflix's Shares Got Crushed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of movie maven Netflix (Nasdaq: NFLX  ) were getting two thumbs down from investors today, falling as much as 15% in intraday trading after the company reported first-quarter earnings.

So what: It's almost funny how predictable it is that when Netflix reports earnings there's going to be some superlative interpretation of some aspect of the report and shares will either rocket up 10%-plus or take a double-digit plunge. Today, in the wake of the company's first-quarter earnings release, the superlative seems to be the movie pioneer's second-quarter guidance (worst ever!) and the stock move is a double-digit drop.

From a more sober vantage point, the numbers for Netflix in the first quarter looked good and the explanation for the light subscriber adds in the second quarter -- namely, seasonality -- seems reasonable.

Now what: Investors can expect more of the same from Netflix down the road. This is a company on the leading edge of a rapidly changing industry -- media delivery -- it's a closely watched stock, it's richly priced, and the investors who tend to hang around the stock have hair triggers. The investors who will "win" with Netflix, then, are those who can cut through the blare of big stock swings, extreme financial media commentary, and other day-to-day noise to figure out how much the company is likely really worth and when it's really time to buy, sell, or just hang on for the longer term.

Want to keep up to date on Netflix? Add it to your watchlist.

Motley Fool newsletter services have recommended buying shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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  • Report this Comment On April 24, 2012, at 2:51 PM, imaphule2 wrote:

    I'm glad for the drop. I just added NFLX to the tune of 2% of my portfolio...

  • Report this Comment On April 25, 2012, at 2:47 PM, newageinvestor wrote:

    the stock is continually down 50% from when I first bought it - I can't wait until it picks up some because I can't stand the roller coaster. I'm going to dump it.

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