Netflix earnings for Q3 2015 came out today (Wednesday), and the company reported earnings per share (EPS) of $0.07 on revenue of $1.58 billion.
Analysts had forecasted EPS of $0.08 on revenue of $1.75 billion. While earnings were down 50% from last year, revenue climbed more than 29%.
Netflix Inc. (Nasdaq: NFLX) stock is always volatile following earnings. Today the stock was immediately down 14% after the earnings miss.
But that Netflix earnings dip is not a major cause for concern. The company has been investing heavily in global expansion, as it tries to boost its user total.
The NFLX stock drop is surprising considering Netflix reported total user growth of 3.62 million. That topped analyst estimates of 3.55 million new subscribers in the quarter. User growth is always the most important number for NFLX.
International user growth was 2.74 million in Q3. That topped analyst estimates of 2.4 million new international subscribers.
Netflix now claims a total user base of 69 million members and plans to end 2015 with more than 74 million.
"Netflix is seeking to become the preeminent provider of content globally," Money Morning Defense & Tech Specialist Michael A. Robinson said. "Right now, they are going through an Amazon.com Inc. (Nasdaq: AMZN) style growth period. It's the Bezos model - build, build, build - then the profits will follow."
The company's user growth has been rapid. This time last year, it had just over 53 million subscribers. In October 2014, it was just 40 million. If you go all the way back to October 2012, the total was 29 million.
And Netflix is so confident that its numbers will keep growing that it bumped the cost of its basic streaming service from $8.99 a month to $9.99 per month.
"The fact they are able to raise subscription prices on new subscribers means they are confident in their growth ability, and their ability to add new subscribers," Robinson said.
Despite the incredible growth trajectory, Netflix stock is not the perfect investment for every investor...
Should I Buy NFLX Stock Following Netflix Earnings?
While Netflix is one of the best growth companies on the markets now, there's no denying that Netflix stock is one of the most expensive stocks on the market.
According to Yahoo! Finance, Netflix stock has a forward P/E ratio over 367. By comparison, major tech competitors Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOGL) have forward P/E ratios of 11.4 and 19.9.
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It's also an extremely volatile stock. As we saw from the 20% sell-off in late August, the Netflix stock price is subject to wild swings periodically. And it's always volatile following Netflix earnings, as today's 14% drop shows.
"The next couple of quarters may be dicey for Netflix stock because of the stock market," Robinson said. "This stock's personality is that it periodically goes through sell-offs. You need to be thinking long term with Netflix."
For those reasons, you can't take a short-term investing approach with NFLX stock. Robinson says that Netflix stock is a good long-term investment for investors who are willing to take on risk.
"They are in a period of global growth, and I like it at this price near $110," Robinson explained. "But the risk there is that it's been volatile lately. If you can hang in and go through any volatility, you can be okay with Netflix stock long term."
The stock's price is based on its growth potential. Robinson says that if growth stops, the stock could be in for a sell-off. That's why Netflix stock is only for long-term investors who are willing to accept some risk in their portfolio.
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