Netflix Misses Earnings Expectations: Should Investors Worry? (ANALYSIS)

Last Updated on July 21, 2021

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Netflix released its second quarter numbers on July 20. They missed expectations. Analysts had predicted earnings per share of $3.14. The actual figure was 5.41% below that,or $2.97. 

This isn’t news that Netflix investors ought to be happy about, but it isn’t the world’s reddest of flags either.

It is somewhat mitigated by the fact that on an operationally critical number, the number of global paid streaming subscribers, Netflix beat analysts’ expectations. The consensus prediction was 208.7 M. The actual number was 209.2 M.  

Should You Be Worried? 

Tuesday afternoon, when the Netflix numbers were released, the value of the company’s stock (NASDAQ: NFLX) stood at $534.80. At 10:30 the next morning it was at $508.54. That is where it found support. It spent the rest of the day toggling between $508 and $511.

So “Mr Market” was disappointed by the EPS number, but not devastated. 

Netflix Was Very Helpful During the Pandemic
Netflix has been a wonderful help to the stranded: people spending a lot more time at home than they usually do. Photo credit: Shutterstock.com

This was a less dramatic move than we saw in April, with the release of the first quarter numbers, which were also disappointing.  The price was at $554 before that announcement, and  fell below $5.09 soon after.

But Netflix has been between $480 and $560 for a long time now. Vaccines started going en masse into the arms of Americans in late January, and that’s made a difference. 

Netflix has been a wonderful help to the stranded: people spending a lot more time at home than they usually do. They’ve been watching a lot of streaming movies because it is the way to see movies if the theaters are closed.

Deal With Steven Spielberg Means a Lot

Now, though the pandemic seems to be receding both in the United states and in much of the rest of the world. Although there is still the possibility of a resurgence as a “variant,” there is a sense of optimism, and couples are enjoying date nights again. That has been a negative for Netflix, and may account for the disappointing numbers in both quarters of this year.

One might be worried about any short-term plays if you’re going to have to liquidate before the third quarter is through. If your horizon goes beyond that: Netflix is a sound company and its stock is a solid hold. Management, after all, adapted to the “new normal” and they will surely be in a position to adapt to any return of the old normal.

Consider that Netflix only recently signed a deal with Amblin, Steven Spielberg’s corporate alter ego.  That deal will help secure a continuing stream of high-quality content.

In total, Netflix will spend $17 billion on content in 2021. Date nights or not, people have become accustomed to streaming, and they will buy solid content. Netflix has commendably kept its eye on that ball.    

Final Thoughts

In a recent letter to shareholders, Netflix sought to tamp down any expectations that it was looking for someone to acquire, or with whom to merge. Deal-making makes headlines, but in the entertainment business content makes happy customers, who make the content provider profits.  

Indeed, a writer at Motley Fool thinks Netflix is so attractive she uses it to explain fractional investing. At more than $500 a share, buying actual shares will not be a good idea for everyone. But if the company is a good fit for your portfolio, it is appropriate to look for a chance to buy a piece of a share.