Has Netflix Reached Its Peak?

After four consecutive quarters of surprising the market with stellar results, Netflix (Nasdaq: NFLX) delivered rather weak results recently. The market was disappointed with its lackluster growth, sending the stock tumbling 13% in the after-hours trading session.

Netflix’s Financials

Netflix’s Q2 revenues grew 40% over the year to $3.9 billion, marginally short of the Street’s forecast of $3.94 billion for the quarter. EPS of $0.88 was better than the market’s projections of $0.79 for the quarter.

During the quarter, Netflix added 670,000 domestic subscribers and 4.47 million international subscribers. The market was looking for an addition of 1.2 million domestic subscribers and 5.04 million international subscribers. Netflix did not even manage to meet its own forecast of 1.2 million domestic and 5 million international subscribers.

For the current quarter, Netflix expects revenues of $3.99 billion, short of the market’s forecast of $4.13 billion for the quarter. It expects to add 650,000 domestic subscribers compared with the Street’s expectations of 953,000 subscribers. International subscriber forecast addition of 4.35 million was also short of the market’s projected addition of 5.095 million for the quarter. Netflix expects to end the quarter with $0.68 EPS compared with the Street’s forecast of $0.71 per share.

Netflix’s Growth Concerns

For Netflix, it has always been about subscriber growth. And its recent quarterly results failed to deliver on those numbers. The company mentioned that it was hurt by unfavorable currency movements during the quarter and did not give a reasonable expectation for the miss on subscribers. It claims that it had seen a similar shortfall in the subscriber growth two years ago, and believes that the recent shortfall could be seasonal as well. But if its forecast for the current quarter is to be believed, then the flat sequential growth could suggest something bigger than seasonality.

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