Netflix Sends Investors Packing -- Again


Shares of Netflix (NAS: NFLX) are trading off more than 16% after-hours as investors expressed disappointment in the company's third-quarter results , announced after the bell.

Financials weren't the problem. Netflix beat estimates on both the top and bottom lines:


Q3 2012 Estimate

Q3 2012 Actual

Q3 2011

Y-o-Y Growth


Earnings per share






$904.89 mil.

$905.09 mil.

$821.84 mil.


Source: Yahoo! Finance .

So why the sell-off? Guidance. Netflix now says to expect no more than 27.1 million in total domestic streaming subscriptions , which would amount to a full-year gain of just 2 million in Q4 and 5.43 million for the full year. Earlier, Netflix had guided to 7 million new domestic streaming additions, a target I went on record as saying was perfectly achievable.

Over at AllThingsD, Peter Kafka posits that Reed Hastings' letter to shareholders implies that (NAS: AMZN) is closing fast on Netflix.

"Our estimate is that viewing of Amazon Prime Instant Video has yet to pass that of Hulu," Hastings wrote, a shift from last quarter, when he remarked that neither Hulu nor Amazon was "gaining meaningful traction" in terms of share of streaming viewing hours.

The implication, Kafka argues, is that Amazon is making noticeable progress and will soon pass Hulu on its way to passing Netflix. Maybe. But before we go too far down this rabbit hole, it's worth noting what else Hastings said, principally:

Of our top 10 TV shows, six are only on Netflix, and not available on Hulu, Amazon Prime Instant Video, or HBO GO. The ratio is slightly higher for our top 50 TV shows. We have a very unique and compelling offering.

AMC Networks' (NAS: AMCX) post-apocalyptic hit The Walking Dead is a good example. Netflix is also the only partner with streaming rights to the James Bond films -- though, to be fair, its selection is lacking compared with what you can rent at either Amazon or iTunes.

Yet there's no doubt Netflix is occupying more of our time. In the same quarter in which the Olympics ruled TV, 29 million viewers consumed more than 3 billion hours of content. Talk about a captive audience.

Just don't expect it to make a difference over the short term. This is a business with a long road of opportunity that's still being paved, and the ride will no doubt be bumpy. How can investors follow along? My colleague Jim Mueller over at Motley Fool Stock Advisor says sustainable international growth is one of three key areas to watch. Click here to get your copy of a special report that reveals the other two areas plus all his latest thinking on the stock.

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