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Why is Netflix suddenly worth about 5% less than before? A mixed earnings report, a disappointing new paying customer number and slightly slack guidance appear to be the answer.
Heading into the third quarter, Netflix told investors that they should expect it to generate revenues of $6.33 billion, operating income of $1.25 billion and net income of around $954 million, worth about $2.09 in earnings per share.
Today, Netflix reported $6.44 billion in revenue, operating income of $1.32 billion, along with $1.74 in per-share profit off of net income of $790 million.
Netflix bested its revenue goals, but fell short on profitability.
The company also managed to best analyst revenue expectations of $6.38 billion, while missing out on analyst per-share profit expectations of $2.13.
Adding to the pain, Netflix also missed expectations on new customer adds. In its Q2 earnings, Netflix said that it "forecast[ed] 2.5m paid net adds for Q3’20 vs. 6.8m in the prior year quarter," because its "strong first half performance likely pulled forward some demand from the second half of the year."
Today Netflix reported just 2.2 million customer adds, missing its own targets and sharply missing analyst expectations of around 3.3 million for the period (some analyst counts had an even higher guess).
Looking ahead, Netflix says that in Q4 it expects revenues of $6.57 billion, operating income of $885 million, $615 million in net income, earnings per share of $1.35, and 6.0 million new paid customers in the period. The street had been looking for $6.58 billion in top line, and just $0.94 in per-share profit, so it's hard to parse which part of the forecast is driving more investor sentiment.
Regardless, today's earnings report will not move Netflix's share price too far from its recent, all-time highs. The company may take a ding from its profit miss, but nothing material.