Why has Wall Street seemingly vindicated Netflix, Inc. (NASDAQ:NFLX)’s strategy in the last quarter even though it led to a massive miss on earnings per share?
According to Tuna Amobi of S&P Capital IQ Analysts in an interview with Bloomberg Surveillance, Wall Street is not looking at the earnings per share miss but rather at other factors that point to a far more prosperous future for the company.
Bloomberg’s Olivia Sterns points out to Amobi that the consensus before Netflix, Inc. (NASDAQ:NFLX) reported its performance for its latest fiscal quarter was that the company would post earnings of $0.63 per share. During its report, the company revealed $0.38 earnings per share, Sterns adds, yet early trading on Thursday saw the stock up 10%.
“The main miss, Olivia, was due to foreign exchange headwinds. If you strip those out, I think you could get the sense that the company actually significantly outperformed. [And] it was no surprise that foreign exchange was a factor because they are accelerating their international expansion. But the real story, I think, is subscriber growth,” Amobi tells Sterns.
According to the analyst, Netflix, Inc. (NASDAQ:NFLX) outperformed domestic subscriber growth estimates by over 500,000. It also beat expectations internationally, adds Amobi.
During its report, the company said it added 2.3 million subscribers in the U.S. and 2.6 million outside of the U.S. to end the quarter with over 62 million subscribers.
There seems to be an “inflection in the business model” that shows no signs of slowing down soon, Amobi tells Sterns. He adds that S&P Capital IQ thinks the company can actually get to the 90 million homes it says is its potential addressable market in the U.S. Furthermore, the huge upside in the stock can be seen in its international expansion, Amobi says, as they will roll out their service to 200 countries in the next two years versus the 50 countries they are in at the moment.
Sterns counters, however, saying that international expansion costs the company big capital outlays. In the last quarter, the company reported $65 million spent on international expansion and that figure is expected to balloon to $100 million next quarter, she says.
Amobi says that the way Wall Street sees this is that as long as Netflix, Inc. (NASDAQ:NFLX) delivers subscribers with their expansion, they are not in the red. So while the company does not make money now in its international operation, it has set itself up for “significant material profits” starting in 2017 and beyond.
Daniel Benton’s Andor Capital Management owned 1.25 million Tesla Motors Inc (NASDAQ:TSLA) shares by the end of 2014.
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