Netflix shares, despite the streaming company posting fairly optimistic second quarter results in the midst of the coronavirus pandemic, plunged Thursday after the close.
The Los Gatos, California-based company revealed that it had gained 10.09 million more paying subscribers than planned, as viewers bound to their homes in the absence of live events and movie theaters due to COVID-19 constraints binge-watched its shows.
According to research firm Refinitiv, the leap in global subscribers over the quarter ended June 30, was well above analyst estimates of 8.07 million. Netflix reported a profit of $720 million on $6.1 billion in sales in the recently ended quarter, compared with $709 million profit on $5.8 billion in revenue in the first quarter this year.
The company's shares quickly dropped over 10 percent ($527.39 at the close, Thursday) during extended sessions that followed the release of the group's earnings figures. In a letter to shareholders, Netflix disclosed that while its roster of original shows for 2020 is on course, the group is focused on safely getting output back up and running.
Netflix forecasts $6.33 billion in sales leading to an operating income of $1.25 billion and a net income of $954 million. In per-share terms, it projects to gain $2.09 in revenue. The company also estimates to add 2.5 million new subscribers in the third quarter.
As the market had anticipated the American media services provider and production group to generate $6.39 billion in third quarter sales and $2.00 in per-share profit, analysts have a slightly mixed picture. However, the modest net subscriber tied to the firm's slower-than-seen revenue rally seems to have worried analysts.
In a letter, Netflix executives said that in the first and second quarters, they saw "a significant pull-forward of our underlying adoption that led to major growth in the first half of the year," Jon Swartz of MarketWatch quoted the executives as saying, in his report. As a result, the report added, the company expected less growth for the second half of the year compared to the previous year.
Investors are unloading shares in anticipation of a shaky year ahead, starting with a dreary outlook in the third quarter forecast. The company offered a sales guidance of $6.33 billion, below FactSet analyst estimates of $6.4 billion, and earnings per share of $2.09 against analyst projections of $2.
Still, Netflix is easily in the first spot for streaming services and it is seen to stay that way, Eric Haggstrom, eMarketer analyst, noted. Globally, Netflix is on course to have 454 million individual users for the year, eMarketer said, up 9 percent compared to 2019.
