Investors waiting for the other shoe to drop at Netflix
The pioneer of mail-delivered flicks reported its quarterly results yesterday, and worrywarts will be quick to point out that this is the second time this month that the company is lowering its year-end targets.
However, the new lower revision is just a smidgeon below its more dramatic warning two weeks ago. Expecting to close out the year with 8.85 million to 9.15 million subs is just 100,000 fewer film buffs on board than its earlier takedown (which was a healthier 300,000 chop from the midpoint of the range at the time).
Of course it's not cool to see the company shed its targets so quickly. Have the past two weeks really been so bad that we don't even want to hunker down at home and watch movies? It's not as if Netflix is gouging its customers. With a wide array of pricing plans, penny-pinching renters are simply downgrading their plans. The average member is paying $13.60 a month, well shy of the $14.57 monthly average from a year ago.
The upside here is that margins during the quarter improved. Revenue inched 16% higher to $341.3 million, but earnings took a healthier 30% step up. The company's profit of $0.33 a share is actually better than the $0.31 a share that Mr. Market was expecting. Churn was also kept in check at 4.2%.
Facing physical competition from chains like Blockbuster
Netflix is looking to earn between $1.24 a share and $1.32 a share in its latest quarter, so it's still looking good against Mr. Market's expectations of net income this year to clock in at $1.26 a share.
The double dip in year-end targets is an unwelcome trend to watch, of course. As long as the weakness is economy-based and not Netflix-specific, the company should be just fine when DVD aficionados come back.
The real concern here is what the marketplace will look like when the market does come back. Netflix has set up camp in digital delivery, but that promises to be more competitive than its flagship business, anchored by its distribution centers.
The market keeps changing. Netflix just needs to make sure that it doesn't wind up as a deleted scene on a director's cut.
Other headlines out of the weekly dumpster:
Today's question: Is Redbox a threat to Netflix? Post your thoughts in the comment box below.
Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
More from The Motley Fool
Could Netflix Produce Disney-Sized Revenue Someday?
At least one analyst thinks so and predicts Netflix will rank second in the next three to five years.
3 Stocks for Baby Boomers to Reach Their Goals
Investors looking to achieve financial targets for retirement should consider these timely opportunities.
3 Reasons Netflix Could Continue to Soar and 1 Reason It Might Not
Upgrades from two analysts caused Netflix shares to pop last week. Does their reasoning hold water?