Question: Comment on revenue, profit, and loss of key industry players?
Summary: Netflix has been going through a rough couple of months. Shares have lost 60% of their value since July, partially because of their price raise and partially because of their botched DVD-streaming split, which fell through last month. Despite all of this, analysts are expecting Netflix to see a third-quarter profit of 96 cents a share, way up from last year's third quarter earnings of 70 cents a share. Analysts are also expecting revenue to reach 813 million dollars, as compared with last years third quarter revenue of 553.2 million dollars. This rise in revenues is expected to come partially from the rise in prices from $9.99 for a DVD-streaming plan to $15.98, and from Netflix's work with several other broadcasting firms, including Fox and CBS. Analysts have said that despite the tough quarter, Netflix is working hard on regaining customer appreciation, and will likely continue to see a rise in profits.
Analysis: Netflix has absolutely been through a very rough quarter, no one will deny. Yet at the same time it's growth opportunities remain large, and with its planned expansions into Canada and Europe over the next few quarters, it certainly has the opportunity to continue to produce a very hefty profit. Nevertheless, I can't help but wonder if these estimates aren't a little bit too high. Netflix's change in prices may have caused many to leave, and while the majority stayed, I would not at all be surprised if most switched to a less expensive streaming only plan. The disastrous plan to split the company's DVD and streaming segments into different companies likely had an extremely large impact on confidence in the company, and may have impacted revenues more than analysts are predicting. I am not an analyst, so I cannot say for sure what data those who are use, but looking at it from my armchair blogger's perspective, I am going to remain cautious about a $0.96 EPS and $813 million revenue coming out on Monday afternoon.
I agree with your doubts about the optimism of the revenue projections. While I do think that Netflix will recover from its blunders of the past few months, I do not think it will be quite so soon. From personal experience, I know many families who either have switched or are planning to switch to a streaming only plan - though I would think that analysts must have taken that into account. I think Netflix moved to fast in trying to restructure their product offerings and lost a bit of the trust that consumers had for it.
ReplyDeleteI think one of the reasons why analysts are overly optimistic (according to Thadius) about Netflix bouncing back from its "disastrous plan" is that Netflix offers services that no other company offers. While some customers have left Netflix due to the price raise, I don't think many more will leave, solely because Netflix is so unique and offers such superior services. So, overall, I understand why the outlook could look bad for Netflix, but I think that in the long run, this dip in Netflix stock will be look like a small blip in the future.
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