Investors Surprised as Netflix Stock Drops

July 17, 2018
1169 Views

Netflix, one of the highest performing technology and media stocks of this year, has taken a steep dive after Monday’s trading.

Netflix Inc. (NASDAQ: NFLX)

Shares fell by almost 14% after Monday’s trading. The stock drop coincided with the company’s second quarter revenue announcement, which revealed disappointing figures that broke the upwards trajectory of previous quarters.

Context and details are important for investors who have only read the headlines.

What Did the Quarterly Report Say?

While some investors are panicking, the performance of Netflix in the last quarter is actually rather impressive.

  • The company added 5.2 million new subscribers in the past three months.
  • $3.9B in sales revenue was made.
  • The company made $384M in profit after all deductions.

This is by no means a poorly performing company. In fact, many well established Hollywood studios would love to present financial figures like this at the end of a quarter. Sales are up 40%, so, why are investors so worried?

One of the reasons is that many investors have overinflated expectations of Netflix, partially due to speculation, and partially due to Netflix’s own overoptimistic forecast. At the end of last quarter, it was aiming for 6.2 million new subscribers. While they fell a million short, the 5.2 million new accounts are nothing to scoff at. The company is performing better than any other subscription media service, and they have forced companies like AT&T and Comcast to heavily invest in media businesses so that they can remain competitive.

Netflix is a market disruptor and performance is high. While not quite as expected, the quarterly figures can still be taken as positive in terms of raw growth.

For investors that have been around long enough, this will bring memories of the second quarter of 2016, when the company shares dropped more than 16% after the company failed to meet its quarterly target. This is probably not the last time that it will experience something similar, and it’s not unique in the stock market, particularly in tech stocks. Apple, Google, and Amazon have experienced similar price drops in the past due to overly optimistic growth projections.

Netflix is still tracking at 108% growth for the year so far, which means it’s one of the highest performers in this volatile market.

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