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Posted by on Jul 25, 2011 in Markets, TG Roundup

Ahoy Netflix!!!

If you missed the Netflix ads or Netflix story of late, you must not be living in the United States. Regular listeners of my show know that Netflix is one of my beat-up horses. I was on record saying that it is a company with a bloated stock price and potentially an accounting scam artist. Chickens are coming home to roost? (via Zero Hedge)

At last check Netflix’ stock was down about 10% following an earnings report that was about as ugly as they get. While the company beat Q2EPS consensus of $1.12, coming with a number of $1.26, it missed revenue estimates of $790.5 MM at $789 MM. What’s worse, it forecasted Q3 EPS of $0.72-$1.07, far below the $1.23 consensus, while it sees revenues of $780-$805 MM on consensus of $842 MM. And digging deeper, the rot was pervasive in virtually every line item. But don’t worry: according to NFLX, it is now bearing the Pirate Bay scourge. Not. But at least Jim Cramer loves it.

Other ugliness:

  • The company anticipates its current Qtr end subscribers of 24.6 million (up from 22.8 million) to barely grow to a range of 24.6 to 25.4 million
  • Gross profit declined to 37.9% from 39.0% sequentially, and from 39.4% Q/Q
  • The domestic subscriber acquisition cost jumped from $14.38 to $15.09
  • Average monthly revenue per subscriber dropped to $11.49 – the lowest in the past 3 years, and certainly the lowest under the current business model
  • The company had 1.3 million free domestic subscribers, and 110K foreign subs
  • Of the company’s $86 million in cash from operations, $40 million came from working capital: a traditional “source” of cash for the company
  • Take away this traditional, but non-recurring working capital fudge and instead of adding $25 million in cash, the company would have burned through $15 million in cash in Q2.

Full Story

3 Comments

  1. well how do you feel about the netflix price increase for their dvd and streaming service? to be honest I do not really care that much because when you think about it, the more you pay for netflix the more titles they can purchase for us and in the long run subscribers will be happy again. but maybe im wrong?

  2. I think the major setback for this company came when they are discouraging dvd rentals. now they increased the cost of having this option. and they now have to face competition from the likes of walmart and amazon but I think thier business model will be better only if the network bandwidths in US will increase and the net neutrality is upheld. It is a shame US still has only sub-100MB speeds wheres south korea and Japan have 1G links to homes. For all the open competition in US, they have the implicit monopolies in terms of Baby Bells and so on.

  3. The faster the rise for NFLX, the harder it would probably fall. Not short yet, but will eventually I think. Squeeze from studios, competitors and consumers will get probably get more intense now.