Netflix Stock Shakes Off Rough Quarter and the Olympics

By Markets Fool.com

Image source: Netflix.

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You don't need a spoiler alert before discussing the beating that Netflix(NASDAQ: NFLX)took after posting woefully disappointing financial results three weeks ago. It's old news. It's known news.

Weak subscriber growth and an equally unsettling outlook for net additions during the current quarter crushed the stock. Netflix shares plunged more than 13% in a single day, going from $98.81 to $85.84 on July 19.

Between the sharp deceleration in the expansion of its user base and fears that the Olympics would eat away at demand for Netflix's streaming service, it was easy to fear that catalysts for growth would be hard to come by in the near term. However, the stock has managed to claw its way back with every passing trading day. Netflix stock closed at $97.03 on Friday, having made back most of its losses despite the same fundamentals-stinging concerns still in play.

Pessimism is still in the air

Netflix closed out this year's second quarter with just 1.68 million more subscribers than it had when the period began. Back in April, it was targeting 2.5 million net additions. It was the first time since Netflix began breaking out its streaming audience base that it experienced a year-over-year slowdown in total digital accounts. It won't be the last. Netflix's guidance calls for just 2.3 million net additions during the current quarter, well below the 3.62 million it gained during last year's summer quarter.

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There is no reason to believe that the prognosis has changed since Netflix initiated the call three weeks ago. Initial ratings for the Olympics in Rio have been lower than they were four years ago, but that's information that we didn't have until the televised events began late last week.

There have been some interesting developments. There was chatter surrounding Netflix as a takeover target last week. We also hadPacific Crest analyst Andy Hargreaves put out a report last week that gushed about Netflix's Stranger Things being the hottest new TV series of the summer. He has a bullish overweight rating and an encouraging $125 price target on the stock. However, even with fewer people tuning into the Olympics as before, it doesn't seem as if non-subscribers will be coming in droves this quarter.

Optimism finds a way

The one thing that may be pushing the stock higher is that many longtime subscribers will start paying more this month. Folks who were paying as little as $7.99 a month for the flagship service will start shelling out $9.99 a month for the same platform that offers high-def streams on as many as two screens at the same time.

Slowing growth is a given with maturing companies, and with 83 million global streaming subscribers, it's easy to see why growth rates will decelerate in the future. It's still impressive to see a slowing company bounce back so quickly after a horrendous quarter. Stranger Things indeed.

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Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.