Netflix Will Be Just Fine

By Douglas A. McIntyre Updated Jan 11, 8:56PM EST · Published Jul 17, 6:35AM EDT

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Netflix Will Be Just Fine — © Thinkstock

Shares of Netflix Inc. (NASDAQ: NFLX), which had traded in nosebleed territory, sold off viciously when the company announced second-quarter earnings that were less than expected. Lost in the frenzy was the fact that the company has 130 million subscribers worldwide, a number not so far above its competitors that it has an unimaginable lead.

Investors were offended that Netflix only added 5 million subscribers worldwide during the period, compared to the first quarter of the year. In the United States, subscriber numbers were up by only 670,000 to 54.4 million. Nevertheless, Netflix revenue was $3.9 billion, up from $2.8 billion in the second quarter of 2017, which points to the issue of whether the fairest comparison is with the immediately previous quarter or with the one a year ago.

The extraordinary part of the results is that the company is growing at all, given how much it has increased prices to subscribers. Netflix could fairly make the case the health of the top line is driven by slowing demand against rising subscription rates. Given that Netflix is spending hundreds of millions of dollars on original programming, revenue is the better measure. Netflix net income in the second quarter was $384 million, compared with $66 million in the second quarter of 2017. While the margin is still razor-thin, the improvement should be welcome.

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Netflix management opened their letter to shareholders with a double-edged sword:

We had a strong but not stellar Q2, ending with 130 million memberships. Membership growth was 5.2m, the same as Q2 last year, but lower than our 6.2m forecast. Earnings, margins, and revenue were all in-line with forecast and way up from prior year. Internet video is growing globally and we are fortunate to be one of the leaders.

Not one of the leaders. The clear leader.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.