Netflix (NFLX -0.41%) proved mortal in Monday afternoon's financial update. Subscriber growth fell short of its earlier forecast in the second quarter, and its early read for the current quarter isn't very comforting.
The stock had more than doubled in 2018 heading into this week's quarterly report, so it's not a surprise to see the shares take an initial hit on the uninspiring report. However, before we write off Netflix as a former dot-com darling, let's go over some of the things that the bulls can cling to as they hold out for a recovery in the future.
Image source: Netflix.
1. Customers are paying a lot more
The first of the two daggers in Netflix's report is that the world's leading premium streaming video platform tacked on just 5.15 million net subscriber additions, slightly less than the 5.2 million it rang up a year earlier and well below the 6.2 million that it was targeting back in April. Netflix missed its domestic and international subscriber goals. It's not a good look for a hot stock, but let's keep going.
Netflix's top line rose 40.3% to top $3.9 billion, just below the 41.2% gain it was eyeing three months ago, but not as bad a miss as its subscriber forecast. How can revenue hold up so much better than its ability to grow its user base? Well, Netflix has grown its paid membership base by 26%, but the average selling price is also up a hearty 14%. You won't find too many subscription services that can keep growing at that clip despite a double-digit percentage hike in monthly rates. Coming up short in terms of official subscriber and revenue is rough, but Netflix's popularity is far from peaking even as the service provider tests its pricing elasticity.
2. Netflix has a way of bouncing back after bad quarters
This isn't exactly a rare miss for Netflix. This is actually the third time over the past nine quarters that the traditional media disruptor has fallen short of its subscriber guidance. The good news is that it rocked back with big quarters in each of the two previous outings.
Netflix's outlook for the new quarter -- the second dagger in the report -- is problematic. It expects to close out the third quarter with just 5 million more active accounts than it had when the period began. Netflix also sees year-over-year revenue growth slowing to 34%. It's not pretty, but keep in mind that Netflix isn't trying to toy with analysts and investors. It's pushing out its internal goals, and as we've seen a third of the time sometimes things don't go according to plan during the final two months and change of a reporting period. Netflix bounces back, and until we start seeing back-to-back quarters of bad quarterly performances, the smart money has to be on the CEO, Reed Hastings.
3. We're still looking at one of this year's biggest gainers
It remains to be seen where Netflix closes on Tuesday, but it took a big hit in Monday's after-hours trading. The stock plummeted 14% in the hours following Monday afternoon's report. However, even after the hit, the stock was still trading 79% higher year to date.
Unless the stock falls below $200 -- $191.96, to be exact -- it will continue to be in positive territory for 2018. It's easy to get down on any stock after it tumbles following a disappointing report, but Netflix continues to be one of the best growth stock stories in recent years as well as this year.
