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Monday, October 24, 2011

The Flickering Light (NASDAQ: NFLX)

NEW YORK - Netflix may have just reported the worst quarter ever as the company announced Q3 profit which shrunk by $6 million compared to Q2 from $68 million. Worse was subscribers dropped for the first time in a long time and revenue as a whole only grew 4.1% sequentially to $821 million. The company also guided way down for their next quarter as they expect net income only between $19 and $37 million. They expect to lose domestic streaming and dvd subcriptions in Q4.

Worse yet amortization of streaming content will rise by at least $100 million in the next year it grew 30% sequentially, this means profits will drop dramatically going forward since revenue is no longer increasing. If content costs continue their skyrocketing rate then Netflix may report shaply lower profits or a loss in the next year. We calculate content costs could rise to over $200 million a quarter.

Even worse yet the company's financial position is treacherous. Its current ratio which was never that impressive has gone from 6/4 to almost 1/1. Current assets excluding content shows a current ratio of 1/2. Netflix appears to be on the net track towards bankruptcy protection.

Click here to read our Netflix Report

5 comments:

  1. While they had a tough quarter and will see some difficulties moving forward, much of your projections are a bit too bearish.

    Bankruptcy protection, seriously? It's G3 net income increased roughly 65% year over year, and both net income and global revenues for the quarter beat analysts estimates.

    Times are tough, but bankruptcy protection is quite misleading.

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  2. I don't think so look at their current assets to liabilities.

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  3. This post leads with the fact Q3 profit is down from Q2. However, looking back over the last 3 years this is a consistent trend. Last year Q3 revenue was $5.5M less than Q2 -- or a 13% drop Q2 to Q3 in 2010 compared with an 8% drop in 2011.

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  4. But is Q4 Earnings down 50% from Q3 and Q2?

    Who really cares about the last 3 years Netflix is not a seasonal business and that fact would be just an anomaly. Like are you honestly coming in here to tell me that Netflix is a seasonal business that is laughable. Perhaps Q4 goes higher for Christmas Gifts of Netflix but besides that there shouldnt be much change quarterly.

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