Netflix Earnings Report (Nasdaq: NFLX): Rough Times Ahead

Today's (Tuesday's) Netflix Inc. (Nasdaq: NFLX) earnings report was better than expected, but turned off investors with weak guidance for the rest of 2012.

For the second quarter Netflix reported earnings per share of 11 cents. Profit hit $6 million, a huge improvement from last quarter's $4.5 million loss. Revenue was up almost 13% to $889 million, up from $789 million in the second quarter of 2011.

Netflix earnings beat analysts' forecasts of 4 cents per share on revenue of $889 million, but fell short of last quarter's $1.26 earnings per share.

Netflix reported it added 1.1. million subscribers in the second quarter, to total more than 27 million users worldwide. They had projected adding between 200,000 to 800,000 subscribers, lower than the 1.7 million subscribers added last quarter.

But the company said it might not meet its goal of totaling 7 million U.S. subscribers in 2012. Netflix projected an additional 1 million to 1.8 million U.S. streaming subscribers in the third quarter, and unless it hits the high end, it will likely fall short of 7 million by year's end.

For its third quarter, Netflix said it expects to lose as much as 10 cents a share, or earn as much as 14 cents a share. That range would give a midpoint of a profit of 2 cents a share.

Netflix Earnings (Nasdaq: NFLX): Still Punished by Price Increases

Even though Netflix did not duplicate its first-ever quarterly loss suffered last quarter, the company is still struggling to recover from raising its prices.

Netflix undoubtedly regrets the decision to raise subscription prices for unlimited viewing from $5 to $8. Since that decision last summer Netflix stock has fallen from a high above $300 to its current price of $80.

Let's not forget the ill-fated attempt to spin-off its DVD rental service into a company called Qwikster. Customers were not too happy.

Investors fled the stock and Netflix has seen membership decline as well. Since last fall Netflix has seen DVD subscribers fall from 14 million members to around 10 million. The company saw DVD subscriptions fall by about 850,000 last quarter to 9.2 million.

The California-based company had 23.4 million streaming customers in the U.S as of March 31. Domestic subscriber numbers rose 2% in Q2 to 23.9 streaming customers.

Netflix is betting that its video streaming service will be able to revive the company but it faces stiff competition from Amazon.com Inc. (Nasdaq: AMZN) and Hulu.

Earlier this month CEO Reed Hastings boasted on his Facebook account that Netflix subscribers had streamed over 1 billion hours of video in June. The stock has risen 20% since that announcement.

The ability or right to stream certain movies and TV shows comes at a lofty price though. Netflix has reported that as of March 31, it signed contracts that will require the company to pay $3.6 billion in licensing rights during the next five years, including $730 million by next April.

Netflix rose 0.56% to $80.39 Tuesday before the earnings report release, but dropped sharply by 14% in after-hours trading.

If NFLX can open strong Wednesday we might see a short squeeze as the short interest as a percentage of the float for Netflix is extremely high at 24.3%.

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• Reuters:
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