Most stocks would be crushed by news that earnings per shares dropped almost 50 cents from a year earlier and missed Street expectations by 31 cents. Not Netflix. Shares were soaring in after hours trading Wednesday thanks to stronger than expected subscriber growth. The company also announced plans to split its stock for the first time since 2004.
With hits like House of Cards and Orange is the New Black Netflix has shown the world that its actors, writers and directors knows how to put on a show. The video streaming company's mixed third quarter earnings report shows the same can be said for its investor relations team which has managed to turn all eyes to subscriber growth.
Netflix Inc. - Earnings Surprise | FindTheCompany
Netflix shares shot up close to 12% following the company's release, crossing the $500 mark for the first time ever and settling over $530. (The stock may not stay that high for long if shareholders approve the proposed stock split, also announced Wednesday.)
In a letter CEO Reed Hastings and CFO David Wells reminded shareholders that: "The quarterly guidance we provide is our actual internal forecast at the time we report." But the fact the company went conservative with that guidance and managed to under-promises but over delivered was not entirely surprising. A few quarters ago Netflix learned the hard that shareholders do not like it when they miss company subscriber forecasts. The stock slipped 25% after its third quarter 2014 earnings report and didn't recover until it came out with stellar fourth quarter figures in January.
Netflix says it expects to add 600,000 subscribers in the second quarter, similar to a year ago.
Given the stock spike investors don't seem too bothered by the company's massive earnings per share miss. Wall Street analysts were forecasting 69 cents in per share earnings on a 45 cent forecast from the company -- but Netflix earned just 38 cents per share. At $1.4 billion revenue was also short of expectations.
For the weak top and bottom line numbers Netflix blames the strong dollar, meaning its 2.6 million new international members are a short term catch 22 but the company is clearly betting that long term growth is good. "Forex headwinds offset better than expected subscriber growth," wrote Hastings and Wells.
At the close of regular trading Wednesday Netflix share were at $75.74 down slightly for the day after opening at an all time high of $480.93. The stock is up close to 40% for the year.
