Netflix stock drops after Q3 earnings announcement

Even when it does things right these days, Netflix (Nasdaq: NFLX) still can't seem to get a break. The online video purveyor announced third quarter earnings of 11 cents--far better than analyst expectations of 4 cents--and still, its stock price dropped by double digits, falling $11.65 to $56.57.

The company this week completed its Nordic expansion by adding Sweden, Denmark, Norway and Finland to the list of countries where residents can now order movies and other programs online. Third quarter earnings reported an increase of 1.6 million streaming video subscribers in the United States and 690,000 internationally, bringing total numbers to 25.1 million domestically and 4.3 million elsewhere.

And yet there was a precipitous 17 percent stock decline. Three month revenue of $905 million was about what everyone expected, but the fact that the company forecast revenue in the range of $919 to $943 million in the fourth quarter--just about even with consensus estimates--and projected share earnings which ranged from minus 23 cents to plus 4 cents, weren't good omens. The average estimate for the fourth quarter is an 8 cent loss, according to a story in Barron's.

Perhaps, though, the biggest concern of all is that Netflix and its investors now know the company is in for a battle. Where once there was no competition, now there are (Nasdaq: AMZN), Hulu, cable companies with VoD and TV Everywhere and the upcoming Verizon (NYSE: VZ)/Redbox streaming service.

Peter Kafka, of AllThingsD, mined comments from Netflix CEO Reed Hastings to show why Netflix appears to be worried, based on a quarterly letter to shareholders in which Hastings used a nuanced tone to point out that Amazon is making headway. Previously, Hastings was dismissive that Hulu Plus and Amazon Prime were gaining "meaningful traction relative to our viewing hours."

The Netflix boss also said he doesn't believe that HBO and Time Warner (NYSE: TWX) won't start their own Web-only play to compete directly with Netflix in the United States, noting, "[w]e think it will make strategic sense eventually for HBO to go direct-to-consumer in the U.S. and become more of a competitor to Netflix."

Either way, it's apparent that Netflix is a bit spooked on several fronts and that, no doubt, led a skittish stock market to react accordingly.

For more:
- Barron's has this story
- AllThingsD contributed this analysis
- Netflix issued these earnings materials

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