Netflix misses expectations for earnings in the fiscal third quarter

Netflix misses expectations for earnings in the fiscal third quarter
Written by:
Wajeeh Khan
21st October, 10:28
Updated: 21st October, 10:29
  • Netflix misses expectations for earnings in the fiscal third quarter.
  • The streaming service adds 2.2 million net new subscribers in Q3.
  • The production company valued free cash flow in Q3 at £840 million.

Netflix Inc. (NASDAQ: NFLX) said on Tuesday that new subscribers in the fiscal third quarter were significantly less than expected as it reported earnings that missed expectations. Analyst Heath Terry of Goldman Sachs had raised his price target on Netflix stock last week.

Shares of the company slid close to 6% in extended trading on Tuesday. At £380 per share, Netflix is now more than 50% down year to date in the stock market. In comparison, it was trading at a much lower £229 per share in March. Netflix had gained close to 20% in the stock market last year.

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Netflix adds 2.2 million net new subscribers in Q3

Netflix added 2.2 million net new subscribers in Q3 versus more than 10 million each in the past two quarters due to the Coronavirus pandemic that restricted people to their homes. The company itself had anticipated 2.5 million net new subscribers in the recent quarter.

The world’s largest streaming service said on Tuesday that its net earnings in the third quarter printed at £605.89 million that translates to £1.33 per share, versus a lower £1.13 per share in the same quarter last year. In the prior quarter (Q2), Netflix had reported a massive 170% increase in net income.

In terms of revenue, Netflix posted £4.94 billion in the recent quarter versus the year-ago figure of £4.03 billion. According to FactSet, experts had forecast £1.63 of adjusted per-share earnings for Netflix in Q3 and £4.90 billion of sales.

Netflix forecasts 6 million new subscribers in Q4

For the fourth quarter, Netflix now expects to add 6 million new subscribers as compared to the FactSet Consensus of 6.56 million. The American production company valued free cash flow in Q3 at £840 million versus £185 million expected.

In a letter to shareholders, company executives said:

“The state of the pandemic and its impact continues to make projections very uncertain, but as the world hopefully recovers in 2021, we would expect that our growth will revert back to levels similar to pre-COVID. In turn, we expect paid net adds are likely to be down year over year in the first half of 2021 as compared to the big spike in paid net adds we experienced in the first half of 2020.”

At the time of writing, Netflix is valued at £178 billion and has a price to earnings ratio of 88.65.

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