Netflix stock sinks after earnings report

Netflix is enduring a rocky patch at the moment. Photo/Getty Images.

Disney may have prompted concerns about Netflix's viability with a new streaming service. On Tuesday, Netflix offered some of its own reasons for worry.

Earnings figures for the subscription company's first quarter that were announced after the market closed exceeded analyst expectations. But Neflix's guidance for the second quarter was shaky, sending the stock down 7 per cent in after-hours trading before it reversed course and dropped just 1 per cent.

In the first quarter, the streaming service grew its global subscriber base by 9.6 million, outpacing analyst expectations of 8.9 million. International subscribers made up 7.86 million of that number, in keeping with the recent trend of higher Netflix growth overseas.

Earnings, meanwhile, came in at 76 cents per share, a bump over analyst expectations of 58 cents per share. Overall earnings were $4.52 billion, slightly ahead of analyst estimates of $4.5 billion.

But the company reduced its earnings guidance for the second quarter from $0.99 per share to $0.55, prompting the initial sell-off. The company also said it expects to add about 5 million subscribers in the quarter, about 1 million lower than Wall Street's expectation.

The guidance comes after Netflix's announcement in January that it will raise prices between 13 per cent and 18 per cent, with much of the change happening in the second quarter.

More detail from the company on those lowered second-quarter projections is expected Tuesday evening when executives hold a call with Wall Street analysts.

The Netflix stock has been up about 30 per cent since the beginning of the year, closing at $359.46 Tuesday.

Meanwhile, competitive threats loom. Last week, Disney revealed a new streaming service, called Disney+, which will contain new, recently released and older titles across the company's major content pillars such as "Star Wars," Pixar and the Marvel Cinematic Universe. The monthly price of $6.99 is barely half of Netflix's most popular plan, and Netflix's stock slid nearly 5 per cent the day after the Disney+ unveiling.

Some analysts said, however, that they were not worried about Netflix subscriber attrition in the wake of Disney+ - which will launch in November - thanks to Netflix's wide range of offerings.

"The idea that consumers will choose Disney+ over Netflix seems unrealistic, unless a given consumer's use case for having Netflix has been limited to watching Disney films," Deutsche Bank analyst Bryan Kraft wrote in a note.

Bank of America analyst Nat Schindler wrote that his firm was similarly not concerned. "We do not view Disney as the competition," he said in his note.

Netflix has seen its numbers of movie and TV shows shrink as some companies have pulled them ahead of their own efforts, but it still has nearly 6,000 films and television series, according to a study last year, with a growing proportion of them originals.

Many analysts believe that consumers will pay for both Netflix and Disney+, whose total price will not much exceed $20 per month.

Still, the emergence of Apple, which will launch a streaming service filled with big Hollywood names later this year, and WarnerMedia's new venture in 2019 could up the bill for many consumers and increase competitive pressure on all streamers.

Netflix played down the threat on Tuesday. "We don't anticipate that these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings," it wrote in a letter to shareholders.

The firm is believed to be near 150 million subscribers globally, with about 60 million of them in the United States.

- Washington Post