Netflix shares dive as subscriber forecast disappoints

Netflix shares [NAS:NFLX] plummeted 12.97% today to $US94.34 (for a market cap of $US39.62 billion).

The dive came after subscriber growth and subscriber growth forecasts for the next quarter disappointed analysts.

For the second quarter, Netflix expects to add 2.5 million members with 500,000 in the US (representing flat growth) and 2.0 million
internationally (against previous year's 2.4 million).

The news comes on the heels of Netflix' latest crackdown on those who use "unblockers," such as New Zealanders seeking to access the greater amount of content on Netflix US.

While previous "crackdowns" on unblockers have seemed like lip-service to rights-holders, this time it's for real. Comments after a recent NBR story indicates Kiwis using unblockers to access (and pay for) Netflix US are now lining up to cancel their subscriptions. The more thinly-populated Netflix NZ does not appeal. The same goes for local versions of Netflix in most other countries outside the US.

Long term, Netflix is trying to position itself better to negotiate for worldwide deals by getting on-side with rights-holders . In the short-term, the crackdown is a boon for the likes of Sky TV's Neon and Spark's Lightbox (although a number cancelling Netflix say they'll simply return to piracy).

A letter to shareholders released this morning contains no hard numbers related to New Zealand, but does note: "Our international forecast for fewer net adds than prior year is due to a tough comparison against the Australia/New Zealand launch [in March 2015]. The ANZ growth spike in the second quarter last year resulted in international second quarter net adds more than doubling year over year (from 1.12 million to 2.37 million). While ANZ is growing steadily this second quarter, it is less than the launch spike last year. Ex­ANZ, international net adds would be forecast up this quarter."

The shareholder update makes no mention of the global crackdown on unblockers. A spokesman told NBR the company has no statement beyond its January 14 statement announcing the push.

Still big numbers, and getting bigger
Although investors took fright today, Netflix' overall numbers are large, and mostly heading north (see table below).

Revenue rose from $US1.67 billion in the fourth quarter of 2015 to $US1.81 billion.

For the current quarter, Netflix says revenue is on track to rise to $US1.96 billion.

Profit, which is again dependent on Netflix' legacy DVD rental business, remains slim: $US28 million for the first quarter reported today, and a forecast $US9 million for the second quarter – maintaining Netflix' long-term trend of just squeaking into the black as it prioritises growth over profit.

Today, chief executive Reed Hastings struck familiar themes, saying his company would continue its international push (it is now in 190 countries, although with low penetration in many non-English speaking territories, or those where it has recently launched). 

More 4K content is also on the agenda, along with more original series. New shows will include a talkshow fronted by US personality Chelsea Handler and Mascots, an ensemble comedy created by Christopher Guest (Spinal Tap).

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– ANZ commentary