Netflix Beats Predictions, But Stock Slips Anyway

Netflix Inc. (Nasdaq: NFLX)'s first-quarter numbers beat Wall Street estimates and the streaming giant predicted a return to profitability in the second quarter, but shares were down almost 15 percent Monday afternoon amid concerns about the company's subscriber outlook.

Netflix posted a loss of $5 million (8 cents per share) on revenues of $870 million. Analysts were expecting a loss of 27 cents on revenues of $855 million. Netflix chalked up the narrower-than-expected loss in part to strong profits from its streaming service and lower costs associated with its international expansion. (See Netflix Expected to Post Q1 Loss .)

The specter of losing Starz Entertainment LLC content at the end of February did not hurt Netflix, as it added 1.74 million domestic streaming video subs in the quarter, extending its total to 23.41 million. It also added 1.21 million international subscriptions (Canada, Ireland, the U.K. and parts of Latin America) for a total of 3.07 million. DVD subscriptions were again Netflix's soft spot as it lost 1.08 million in the category during the quarter for a total of 10.09 million. (See Netflix, Starz on the Outs .)

Netflix said in its letter to shareholders that operations could be back in the black by the second quarter, noting that things are looking cheery enough that it plans to launch a streaming service in another "attractive" European market in the fourth quarter of 2012.

Netflix expects to add about 7 million streaming customers in 2012, about the same it added in 2010. However, it expects domestic net adds in the range of 200,000 to 800,000 in the second quarter, below what it added in the corresponding 2010 quarter. And that seems to be what has investors spooked as Netflix's stock dipped $15.24 (14.96 percent) to $86.60 in after-hours trading Monday.

Another swipe at Comcast
Netflix shrugged off the recent launch of Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s Streampix service and its support for the Xfinity TV app and HGO GO app on the Xbox 360. "Given the superiority of our content selection, user interfaces and device ubiquity, we don't currently see any meaningful near-term impact on our business from these developments," it said. (See Comcast Goes OTT to Target Netflix, Hulu Plus .)

But Netflix did take another shot at Comcast's decision not to apply streaming of the Xfinity TV app on the Xbox 360 toward customers's monthly 250-gigabyte usage caps. Netflix CEO Reed Hastings has been on a rampage about the policy, attempting to turn it into a network neutrality issue. "Comcast could raise the cap and make it apply equally or just eliminate the caps. Net neutrality principles mean a level playing field for all Internet applications," the company noted. (See Netflix CEO Keeps Whining About Comcast and Comcast Won't Cap Xbox 360 Streaming .)

— Jeff Baumgartner, Site Editor, Light Reading Cable

gtchavan 12/5/2012 | 5:35:26 PM
re: Netflix Beats Predictions, But Stock Slips Anyway Is net neutrality a law or just a principle? Can it be enforced?
ethertype 12/5/2012 | 5:35:20 PM
re: Netflix Beats Predictions, But Stock Slips Anyway

It's a principle that keeps threatening to become a law.

I'm no lawyer, but my understanding is that there is uncertainty around what kind of net neutrality could be enforced under current law.  The FCC has taken peremptory action in a few cases where they felt there was a problem, e.g. Madison River (blocking VoIP) and Comcast (degrading peer-to-peer), but even while they managed to shame the perpetrators into changing things, these were not in fact enforcement actions and the limits of their jurisdiction in matters of net neutrality remain untested in court.

Meanwhile, net neutrality legislation pops up in Congress from time to time, but mostly goes nowhere, based on a lack of consensus that net neutrality is a problem demanding a strong legislative solution.

So, by and large, net neutrality is currently enforced more by the service providers' fear of triggering a reaction (public outcry --> FCC inquiry --> legislation) than by current law.

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