On Tuesday, shares of Netflix Inc. (NFLX, Financial) tumbled over 6% in aftermarket trading on the back of reporting third-quarter earnings and net subscriber additions that missed analyst estimates.
The Los Gatos, California-based streaming giant reported net income of $790 million, or $1.74 in earnings per share, compared with net income of $665 million, or $1.47 in earnings per share, for the prior-year quarter. Despite this, earnings underperformed the Refinitiv consensus estimate of $2.14 by 40 cents.
Company reports subscriber growth decline, misses estimates
For the quarter, Netflix added 2.2 million net memberships, missing management's guidance of 2.5 million net subscriber additions and FactSet's 3.57 million net subscriber additions. The decline in subscriber growth from the prior-year quarter's 6.8 million stems primarily from record first-half results and the "pull-forward" effect that management discussed in the past two quarterly letters. Total subscriber adds of 28.1 million in the year to date exceeded the entire 2019 total of 27.8 million.
Despite lower declines, the company saw high growth in the Asia-Pacific region, primarily in South Korea and Japan. The Asia-Pacific region contained 46% of total net subscriber additions and saw double-digit revenue growth over the past year.
Stock falls on weak fourth-quarter subscriber guidance
Shares of Netflix tumbled to an aftermarket low of $490, down 6.74% from Tuesday's close of $525.42 and 7.67% from Monday's close of $530.72. Despite this, the stock is still considered fairly valued based on a price-to-GF Value ratio of 1.05.
The stock was further pressured on the heels of management expecting fourth-quarter net subscriber adds of 6 million, lower than the previous-quarter net adds of 8.8 million. Management further warned that although a potential recovery from the coronavirus pandemic could boost production levels and result in higher streaming content, growth in new subscriptions could revert down to pre-pandemic levels.
GuruFocus ranks Netflix's profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, expanding operating margins and three-year revenue and earnings growth rates outperforming over 84% of global competitors.
Gurus with large holdings in Netflix include Ken Fisher (Trades, Portfolio) and Spiros Segalas (Trades, Portfolio).
Disclosure: No positions.
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