Zacks Equity Research

About the Author Zacks Equity Research brings the decades of study and stock picking expertise of Zacks Investment Research to individual investors. Now, you don't need to be an investment bank or brokerage firm to get the professional power of Zacks' research. It's all available on Learn more about Zacks' history and company on our website.

Netflix, Inc. Misses Earnings, Shares Spike Up (NFLX)

On-demand forerunner Netflix, Inc. (NASDAQ:NFLX) reported Q1 earnings for 2015 after the bell Wednesday, and here’s what happened: 1) the company posted a major earnings disappointment of 38 cents per share from 67 cents expected, and 2) shares shot up 12 percent immediately after the announcement. Revenues of $1.57 billion in the quarter were exactly in-line with estimates, so that’s not the reason.

Subscriber growth, however, was. In the U.S., 2.3 million new subscribers came to Netflix in the quarter — half a million more than expected. Internationally, Netflix won 2.6 million new subscribers in Q1, surpassing consensus expectations of 2.25 million. In total, Netflix now has 62.3 million subscribers globally, with improved customer retention. CEO Reed Hastings’ prediction a quarter ago that Netflix would be “fully global” by the end of this year seem right on target.

So why such a big earnings miss? The big foreign exchange swing was a major culprit; Netflix clearly is feeling the hit of a strengthening dollar. Also, as Netflix faces heavy content competition from Time Warner Inc‘s (NYSE:TWX) HBO and, Inc. (NASDAQ:AMZN), new and returning programming are keeping margins lower — producing high-quality TV shows ain’t cheap.

Shows like “House of Cards” and “Orange Is the New Black” have now been around the block once or twice, and new shows like “Daredevil” seem to be keeping pace. Read more about this here: Netflix’s ‘Daredevil’ Receives Rave Reviews.

Netflix also took steps last week to issue a stock split for later this year, to be voted on at the company’s June 9 meeting. At what’s fast becoming an astronomical valuation — Netflix was trading at 160x earnings BEFORE the share price jumped after hours today — this seems to make a lot of sense. In any case, a 2-for-1 split would not even need approval from the board to pass, so expect that $500+ price tag come down one way or another.

However you slice it, Netflix continues to perform as one of the top success stories of the decade to this point, with now 10 billion hours streamed in Q1 (according to an earlier Tweet from Hastings) and share price gains now well over 50 percent, year over year. What will they do for an encore?

Stay Ahead of Everyone Else

Get The Latest Stock News Alerts