A former market darling -- the stock that was the top performer among the S&P 500 companies in two of the past three years -- continues to prove mortal in 2016. Shares of Netflix (NASDAQ:NFLX) shed 13% of their value last week, fueled by weaker than expected subscriber counts and a weak near-term prognosis.
The same stock that soared 298% in 2013 and jumped 134% in 2015 now finds itself trading 25% lower year-to-date. The prospects for Netflix to bounce back in the second half of 2016 seem challenging at the moment. At least 11 analysts lowered their price targets on Netflix stock last week following its troublesome report.
The party isn't necessarily over for Netflix stock investors. It continues to be the one sticking the heaviest dagger into the heart of linear television, and no one else is remotely close to challenging its top-dog status. However, let's not let the volatile disruptor's awful quarter slide. It was bad. It was really bad.
A gloom with a view
Netflix closing out the second quarter with just 1.68 million more subscribers than it had when the period began fell woefully short of the premium streaming service's guidance of 2.5 million. A lot has been made of the 160,000 net domestic additions during the period, well below the 500,000 it was targeting in April. However, it was only counting on stateside activity to account for just 20% of its net adds for the period.
Netflix also came up short internationally, and in terms of the actual number of subscribers in the shortfall it represents the biggest contributor to the miss. Netflix blamed the domestic miss, in part, on how the media covered its decision to increase rates for longtime users still paying $7.99 a month for its most popular plan. That wasn't as big an issue internationally, and now we find ourselves knee-deep into a quarter that could have even more minefields.
Between next month's Olympics, the actual end of the grandfathering of older rates that begins next week, and folks captivated by everything from Pokemon Go to the 2016 presidential election, it may be hard for Netflix to stand out.
The good news is that Netflix is only targeting 2.3 million in net additions for the third quarter, a period that has historically seen an uptick in signups. However, if the distractions continue it may not be long before Amazon's (NASDAQ:AMZN) Prime Video and other smaller rivals begin to eat into Netflix's popularity.
Amazon's catalog is also ramping up quickly. It will never match Netflix and its $13.2 billion in streaming content obligations, but it's also included at no additional cost to the tens of millions of domestic Amazon Prime members. As more TVs, consoles, set-top devices, and even cable providers provide seamless access to Amazon Video it can be a factor for folks where $9.99 a month is not an insignificant amount.
Netflix will survive and eventually thrive. Investors may come back when they appreciate how much more the platform will be milking from its subscribers after the increase. It will just be a bumpy ride until Netflix proves that its quarterly subscriber guidance forecasts aren't overly optimistic again.
Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Amazon.com and 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. The Motley Fool has a disclosure policy.
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