Netflix (NFLX: $108, down $3, but down at least $10 more in after-hours trading) We say “at least $10” since the stock is jumping around like crazy as we write this. Let’s look at the numbers. Revenues were $1.96 billion for 1Q16 vs. $1.97 estimated, but this was 24% higher than the year ago quarter. Earnings were 6 cents vs. 3 cents estimated. New subscribers in the US were expected to be 1.82 million but the firm smashed that estimate, adding 2.23 million. Sooooooooooo, where is the bad news so far? Looks pretty good to us. OK – Internationally – There was the expectation of 4.49 million new subscribers, but it added 4.51 million. OK – that is good too – 6.74 million new subscribers in the quarter. That says HUGE to us.
OK, here’s what did it: Netflix said it expects to add just 500,000 U.S. subscribers and 2 million international subscribers in 2Q. That would be the smallest customer growth in two years. The $2 increase to their monthly fee to $10 a month, starting next month, is not going over well either. Expect to see some cancellations.
And one more thing: Amazon (AMZN: $635, up $9) introduced a competing service providing videos with a price tag of just $8 a month, undercutting Netflix.
BMR Take: Our Sell Price currently is: “We would not sell Netflix.” This moves today are testing us though. We added the stock at $101 in January and it reached $112 just Friday, down from its all-time high of $126 in November. Testing us? Yes. But not deterred. No one is talking about the number of subscribers added. This is just very big. After hitting 75 million total subscribers in January, they are over 81 million now. For us, that means bigger and better profitability numbers in the future. Netflix is on sale and we would expect to see the stock well over $100 a share three months now if the market keeps moving higher. (It closed over 18,000 today.)