Internet television network Netflix (NFLX) late Tuesday badly missed Wall Street’s expectations for new subscribers and earnings in the third quarter. The Netflix earnings report drove NFLX stock sharply lower in extended trading.


Los Gatos, Calif.-based Netflix added 2.2 million new subscribers worldwide in the September quarter. Netflix had forecast adding 2.5 million new subscribers, but analysts were looking for 3.6 million.

Netflix earned $1.74 a share on sales of $6.44 billion in the third quarter. Wall Street had predicted Netflix earnings of $2.13 a share on sales of $6.38 billion. In the year-earlier period, Netflix earnings were $1.47 a share on sales of $5.24 billion.

In after-hours trading on the stock market today, Netflix stock tumbled 6.1%, near 493.30. During the regular session Tuesday, ahead of the Netflix earnings report, NFLX stock slid 1% to 525.42.

Cites ‘Pull-Forward Effect’ For Subscriber Miss

Netflix management blamed the subscriber miss on a “pull-forward effect” that benefited the prior two quarters. The company believes that subscribers signed up earlier than they otherwise would have because of stay-at-home orders during the first months of the Covid-19 pandemic.

“As we expected, growth has slowed with 2.2 million paid net adds in Q3 vs. 6.8 million in Q3 ’19,” executives said in the Netflix earnings letter to shareholders. “We think this is primarily due to our record first-half results and the pull-forward effect we described in our April and July letters. In the first nine months of 2020, we added 28.1 million paid memberships, which exceeds the 27.8 million that we added for all of 2019.”

For the fourth quarter, Netflix said it expects to add 6 million new subscribers worldwide, vs. analyst estimates of 6.6 million. Netflix ended the third quarter with 195.15 million subscribers.

“Retention remains healthy and engagement per member household was up solidly year over year in Q3 ’20,” the company said.

Netflix Earnings Guidance Tops Views, Sales Lag

For the current quarter, the company forecast Netflix earnings of $1.35 a share on sales of $6.57 billion. Analysts had predicted of 94 cents a share on sales of $6.58 billion in the December quarter. In the year-earlier period, Netflix earnings were $1.30 a share on sales of $5.47 billion.

Netflix stock currently ranks No. 12 on the IBD 50 list of top-performing growth stocks.

According to IBD MarketSmith charts, Netflix stock has been consolidating for the past 15 weeks with a buy point of 575.47.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.


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