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Netflix Drops After Fourth Quarter Earnings

Shares of Netflix, Inc. slipped in after hours trading Thursday after the company reported their fourth quarter results. Prior to the four percent, post-earnings slip, Netflix had run up by nearly 50 percent over the last month of trading, edging back towards pre-October dip levels. The stock is currently trading at $339.

In their fourth quarter earnings report, the company beat on profits, while missing on revenue. While the consensus expectation was $4.21 billion, Netflix reported revenue of $4.19 billion in revenue, still up 27 percent annually. On EPS, the company posted $0.30, topping the consensus estimate of $0.24.

Seemingly, revenue is the only miss for the company’s fourth quarter report, but shares are still selling off. As a subscription-based steaming service, more metrics than simply revenue and EPS will play a role in Wall Street’s outlook. Netflix added 11.36 million more streaming suppliers, widely beating expectations of 7.6 million.

2018 as a whole was another blockbuster run for Netflix’s core business, even as the looming “threat” of streaming competition builds in the distance.

“We grew our annual revenue 35 percent to 16 billion in 2018, and nearly doubled operating profits to $1.6 billion,” said the company in a letter to shareholders.

As of late, selloffs post-earnings have become relatively typical, especially if a company has seen positive price action leading into the announcement. Netflix certainly has. Contributing to its 50 percent run-up over the last month, the company saw a substantial pop earlier this week on an announcement representing more than one billion-dollar revenue: a price hike for subscriptions across the board. The announcement sent the shares more than six percent higher on Tuesday, as Wall Street applauded the move.

While a price hike will obviously be a quick source of revenue, investors and analysts are also now seeing it as a signal for slowing growth. Coupled with a weaker-than-expected forecast, this could be one factor in the post-earnings selloff.

“The fact that investors reacted negatively to what amounted to a strong performance indicates the extent to which Netflix has set a high bar,” eMarketer’s Paul Verna said.

Loop Ventures co-founder Gene Munster shared a similar sentiment with CNBC regard the price hikes. While it shows strength and confidence, it also means that the company has an even greater need to deliver.

“Every time you do that, every time you take a step forward like that, it sets the bar even higher,” said Munster.

Coming out in a show of confidence for shareholders, Netflix dispelled any concerns about streaming competition in stating that Fortnite, and other popular video games were a greater concern to them than streaming services.

“We compete with (and lose to) ‘Fortnite’ more than HBO,” wrote Netflix. “Our focus is not on Disney+, Amazon and others, but on how we can improve our experience for our members,”

In the near term, a further selloff is unlikely for Netflix. More positive price action of any large magnitude is also unlikely until the company releases figures for first quarter 2019.