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Netflix: Blame management or valuation? Add to ...

Netflix Inc. will report its third quarter results after markets close on Thursday, and investors are hoping that the movie-streaming company can redeem itself after suffering a shareholder and customer revolt earlier this year.

“Everyone will be looking for some clarity on how many customers they’ve lost into October, and no one is sure we’ll get it,” said Michael Pachter, an analyst at Wedbush Securities, in an interview with Bloomberg News.

Netflix’s withering share price is central to the frustrations among investors. After peaking at a high of nearly $300 (U.S.) as recently as July, the price slid to a low of just $103-and-change in mid-October – a 66 per cent decline that had many observers fuming over management decisions. Indeed, the shares began to slide after Netflix announced that it would split its DVD mail order business from its online streaming services and charge $7.99 a month for each, instead of $9.99 for both. Outrage followed, and management was vilified.

However, surely the stock’s lofty valuation plays into its recent volatility. This was a stock, after all, that drove comparisons to the sort of insane valuations we saw among tech stocks in the 1990s, with an estimated price-to-earnings ratio as high as 80 earlier this year, and even above 50 as recently as September – the sort of sky-high PE that is bound to make the stock stumble on the first signs of trouble. And signs of trouble have indeed emerged.

Right now, the estimated PE has fallen to 24, with analysts expecting quarterly earnings of about 95 cents a share, up 36 per cent over last year. That’s a lot lower, but high enough to make investors pay close attention to this quarter’s results and forecasts for the rest of the year.

Follow on Twitter: @dberman_ROB

 
Security Price Change
NFLX-Q Netflix Inc. 434.36 10.08
2.376 %
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