Revenue Growth Comes Up Short as Netflix, Inc. Stock Falls After Hours

By Tim

Emmy winner Uzo Aduba and Samira Wiley in season 3 of Orange is the New Black. Credit:Jojo Whilden/Netflix.

Shares of Netflixfell roughly 13% after the bell as investors jeered third-quarter results that came short of estimates. Here's a closer look at the Q3 totals versus Wall Street's projections:

Continue Reading Below

NFLX Revenue YOY Growth EPS YOY Growth
Consensus estimate $1,750.52 million 24.2% $0.08 (42.9%)
Q3 actual $1,738.36 million 23.3% $0.07 (50%)
DIFFERENCE ($12.16 million)
(0.9%) ($0.01) (7.1%)

Sources: S&P Capital IQand Netflix investor letter.

Commenting on the results in the company's quarterly letter to investors, CEO Reed Hastings said:

What went right: Net additions continue to outperform globally (3.62 million versus 3.55 million forecast) despite slight underperformance in the U.S. (0.88 million versus 1.15 million forecast). Also, in August, Netflix raised prices on its "high-definition, 2-screen monthly price plan" without impacting growth. A more recent price hike in the U.S. looks equally promising.

What went wrong:Both revenue and profit came in below estimates due to weakness in the streaming business. Netflix booked $1,581 million in streaming revenue, well below the $1,593 million Hastings and team guided to in reporting second-quarter earnings. On the plus side, streaming contribution profit ($277 million vs. $272 million estimated) and margin (17.5% versus 17.1%) came in slightly ahead of internal estimates, but not enough to keep Netflix from missing Wall Street's earnings target by a penny.

What's next:Looking ahead, Netflix expects $1,667 million in global streaming revenue in the fourth quarter, resulting in $257 million in contribution profit and 5.15 million in net new memberships. Overall, Hastings and his team are guiding for $49 million in operating profit and $10 million in net income, or $0.02 a share for Q4. Analysts tracked by S&P Capital IQ were projecting the company to generate $1,858.72 million in revenue and $0.03 a share in adjusted earnings . That compares with $1,484.73 million and $0.10 a share in last year's Q4.

Longer term, analysts have Netflix growing earnings by an average of 43.28%annuallyduring the next three to five years.

In the meantime, investors should focus on the membership tally as price increases take hold around the world. Establishing a pattern of meager, but regular, raises would help margins, cash flow, and ultimately the stock price.

The article Revenue Growth Comes Up Short as Netflix, Inc. Stock Falls After Hours originally appeared on

Tim Beyerswasn't surprised to see Uzo Aduba win an Emmy. He's also a member of theMotley Fool Rule Breakersstock-picking team and theMotley Fool SupernovaOdyssey I mission and owned shares of Netflix at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.