Netflix Plunges After Cutting Q3 Outlook, Sees Q4 Loss

Tyler Durden's picture


The endless saga of the rental and streaming company, that once had a vendetta with Whitney Tilson until the latter finally threw in the towel after he first shorted then went long Netflix only to blow up on both occasions, continues, this time by plunging 15% after hours following a cut in guidance for Q3 and announcing it will likely once again have a loss in Q4.

From the letter to what little investors are left:

  • We expect content payments to cause free cash flow to trail net income in Q3
  • In Q3, we expect to be profitable, while with the launch of a fourth international market in Q4, we will move to a consolidated loss

Some other observations from the attached spreadsheet:

  • Gross Profit margin dropped to a multi-year low of 27.6% compared to 28.3% last quarter and 37.9% a year earlier.
  • In Q2 only 556K paying domestic subscribers were added, compared to 1816K in Q1, and 1858K in Q2 2011
  • Cash at the end of the quarter rose to $402MM from $395MM last quarter. 

Finally, Reed Hastings' always amusing summary:

Our core thesis is that we can build a large defensible global business as an Internet network for TV shows and movies. Our technology and our content are both huge advantages in getting us to scale; with scale comes further ability to invest. We know our shareholders are depending on us to succeed at our global expansion, market by market, and eventually return to substantial global profits. Our growing US streaming contribution profit stream shows what is possible. We can’t wait to serve a global audience with an amazing Internet video experience.

End result:

Full letter for those who care (link):


Your rating: None

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Tue, 07/24/2012 - 16:31 | 2646889 Robot Traders Mom
Robot Traders Mom's picture

Dear fellow ZH'ers-I have a favor to ask as one capitalist to another. A couple of developers and I are building a news website, basically the genius of free commenting of ZH (no login required either) but a broad based news conglom without the garbage you see on most other sites (read: no Jersey Shore updates). I plan on having many ZH articles linked (one from GM earlier) so hopefully it will draw more traffic here, as well. Either way, the coding is not done to move up or down depending on votes, so this is a rough draft but all ideas are appreciated. is the website and if you want to email us, PS-My son is in no way involved. Thanks-RT's Mom

Tue, 07/24/2012 - 16:36 | 2646929 tmosley
tmosley's picture

The font, it BURNS.

Tue, 07/24/2012 - 16:38 | 2646951 Robot Traders Mom
Robot Traders Mom's picture

THx-the thought was to keep it as simple and basic, asthetically, as possible. Again, thx

Tue, 07/24/2012 - 18:00 | 2647299 francis_sawyer
francis_sawyer's picture

My advice is to load it up with a bunch of illuminati symbols & shit... That'll hook 'em 4 sure...

Tue, 07/24/2012 - 19:51 | 2647531 dark pools of soros
dark pools of soros's picture

change it to a mysterious Annunaki ran website in their language


with full back catalog to all tombs from the Library of Alexandria for members only


Tue, 07/24/2012 - 21:30 | 2647727 bigkahuna
bigkahuna's picture


Tue, 07/24/2012 - 16:45 | 2647017 Id fight Gandhi
Id fight Gandhi's picture

The goggles, they do nothing!

Tue, 07/24/2012 - 16:54 | 2647060 financial apoca...
financial apocalyptic contagion's picture

good effort RTM, but i'm afraid the future of your website looks bleak, ironically like netflix share price.

1st it will spike coz ppl are like "wtf is this, funny top comment, lets see the site", which was your goal.

I'm sure you didn't intend to, but ZH can't be substituted and people don't care abt your site to use it as a compliment.

so yea, up spike, followed by crash down.

good effort regardless and your son isn't a half decent troll anyways

Tue, 07/24/2012 - 17:01 | 2647096 Robot Traders Mom
Robot Traders Mom's picture

I hope you are wrong :)


It isn't intended to substitute, just a more broad source, with many probable links back here anyways. There is plenty of room on the interwebs, and again, this is just a rough draft.


If you have ideas, I am more than happy to listen!

Wed, 07/25/2012 - 02:43 | 2648187 Tsunami Wave
Tsunami Wave's picture

Make the front page a little more aesthetically pleasing (I.E.. make the font a little smaller, Maybe organize the news into sections [Think drudgereport.. without going quite in their direction. just some kind of simple borders or sections that separates the news, or topics, or whatever]...


Also, what kind of news are you talking mostly about? Financial, Political, Science, Cultural, odd? Maybe all of them or more? Try and market that in unique ways (like if it's financial.. have a bar on the side that tracks CDS's, different indices. Or if political.. have a small bar listing things in the schedule that will be discussed on the house or senate floor or whichever place? Offer whatever large and small information)...


Beware of the direction the news site may go. Don't let it become a place where it's hijacked by Liberals, Neocons, weirdoes.. etc. Think of a way of preventing that from happening...


How do people feel when they visit the site and offer comments? Is it going to be like a standard news site where people can comment or offer opinions on sections? Will it be like a blog like zerohedge.. where it's a close community? I'm guessing these days with the blogs I've come across, it would be a good direction to make it a close community type of place.


Optional:    Something I wish that other blogs have, or what even this site would have, is an encyclopedia of facts, terms, and information on a side bar or somewhere easy to look up. I wish tyler would have something on the side bar that lists all the charts he shows [or at least links] (like NYSE circuit-breaker rules, history of all reserve currencies and when they died, list of liabilities, or other terms). With definitions It should kinda be like what wikipedia has.. so people can contribute to them and update them..


Finally.. you should have a goal or an objective, it should be listed somewhere on the front page; why? Why do you have your unique news site? What do you hope to show, expose, or help? On the zerhedge manifesto.. it says "Our Mission: To widen the scope of financial, economic and political information available to the professional investing public"..... etc. etc.


Hope that helps man. Just my opinions.

Wed, 07/25/2012 - 08:04 | 2648429 Icantstopthinki...
IcantstopthinkingaboutNINJAs's picture

Format it to look like a columned newspaper rather than an uglier looking page.

So is the intent to be a drudge report styled news-link page but with the old voting of stories?


Maybe you could do some work to add tags to each story so the stories can be linked, then have a separate page with a tag index?

Ie: the tag bailout would identify every story that was related to or contained the word bailout in it? 

Maybe even have a tag index that could be further reduced more than one level, ie: click on bailout to show all stories related to or containing the word bailout, then show another tag index so one could filter out all stories except for bailout && goldman sachs


just a thought.

Tue, 07/24/2012 - 16:33 | 2646893 Dr. Engali
Dr. Engali's picture

I admit it's my fault. I cancelled my subscription last month. 

Tue, 07/24/2012 - 17:15 | 2647156 Xibalba
Xibalba's picture

Allow me to introduce you to TORRENTS.  


It's like NFLX but for free.....kinda bad for a fee based business model.  

Tue, 07/24/2012 - 19:44 | 2647521 Spastica Rex
Spastica Rex's picture

I wouldn't know myself, but I've heard that the Pirate Bay still works fine and that torrent magnets are the shit.

Tue, 07/24/2012 - 21:23 | 2647713 smiler03
smiler03's picture

Pirate Bay??

Almost all UK ISPS have now blocked access to Pirate Bay. Thank you America.

But the Internet being what it is, if you're a UK Pirate Bay fan then try this, it's one of hundreds of proxies that work...

You do need to replace that number 8 with a 7

Tue, 07/24/2012 - 17:19 | 2647174 Id fight Gandhi
Id fight Gandhi's picture

Their content is shit and worse, it's hard to browse on a mobile device. You literally have to go to a third party site which organizes it sensibly.

Tue, 07/24/2012 - 18:31 | 2647362 Things that go bump
Things that go bump's picture

I cancelled mine this morning and it was a free trial subscription for a month.  I was watching Doc Martin the other night and between 1 episode and the next they pulled it from the queue and all I got was some error message.  When I called about it they gave me some song and dance about agreements with the owners that frankly had nothing to do with me, wasn't my problem anyway and frankly, I didn't care.  I told them last night that I was unhappy and called this morning and cancelled my free subscription.  The customer service person was surprised I would cancel because they pulled 1 series, but they offer very little that I was interested in.  No way am I paying for their service.  As far as I can tell they offer either terrible or very old movies and terrible or very old TV programs.  I can watch those on Hulu if I'm in the mood for self abuse.  

Tue, 07/24/2012 - 21:26 | 2647718 smiler03
smiler03's picture

You're right but you were at fault for not engaging your brain before subscribing to a trial of a bag of shit.

Tue, 07/24/2012 - 21:48 | 2647758 Things that go bump
Things that go bump's picture

Yes, but unlike never dating a muscian or getting involved in someone else's marital dispute, it was one of the cheaper lessons I've learned.  

Tue, 07/24/2012 - 16:33 | 2646894 Conman
Conman's picture

Lol the NasDapplflix wont be happy tomorrow.

Tue, 07/24/2012 - 22:50 | 2647856 Midas
Midas's picture

Interesting, NFLX made their name by partnering with the Postal Service, and then decided to "get ahead of the curve" and go streaming and have done nothing but tank since then.  Maybe the Postal Service will welcome them back....

Tue, 07/24/2012 - 16:33 | 2646895 zero19451945
zero19451945's picture

Paging RobotTrader....

Tue, 07/24/2012 - 16:34 | 2646901 zero19451945
zero19451945's picture

On a more serious note. Netflix's streaming content is total dogshit. Absolutely terrible. That's why they are losing subscribers.

Tue, 07/24/2012 - 16:58 | 2647084 pods
pods's picture

We just cancelled our service.  (see me post below)

Streaming is only useful for old kid's cartoons.  Nothing but B movie junk.

About a year ago my wife and I decided to watch a movie.  We spent an hour trying to find something to watch.  No luck.

Netflix is done, especially since Amazon has movies and shows, and many are even free for prime members.


Tue, 07/24/2012 - 21:31 | 2647730 smiler03
smiler03's picture

You're another one. You subscribed to a service that is shit. Here in the UK you can check their website to see what wonderful content they have before you subscribe.

The word zero comes to mind. 

Get excited by this...

Tue, 07/24/2012 - 16:37 | 2646942 Vincent Vega
Vincent Vega's picture

RobotTrader is likely in the bathroom puking up blood because one of his momo stocks has not hit a world record, all time high. Oh, and btw....add AAPL to the list.

Tue, 07/24/2012 - 21:34 | 2647738 smiler03
smiler03's picture

Robo always sells at the peak. He's busy buying treasuries as fast as he can with his netflix profits. 

Tue, 07/24/2012 - 16:33 | 2646897 Calidreaming
Calidreaming's picture

apple misses


Ha   Ha   Fuck you market

Tue, 07/24/2012 - 16:37 | 2646936 stocktivity
stocktivity's picture

no way!

Tue, 07/24/2012 - 16:34 | 2646904 Dr. Engali
Dr. Engali's picture

Wow ! Big miss on Apple!

Tue, 07/24/2012 - 16:34 | 2646906 eclectic syncretist
eclectic syncretist's picture

Apple missing top and bottom lines by a lot.  Ouch!

Tue, 07/24/2012 - 16:35 | 2646908 Stackers
Stackers's picture

Everyone is dieing to go to the movies these days.



What? Too soon ?

Tue, 07/24/2012 - 16:35 | 2646909 buzzsaw99
buzzsaw99's picture

another ho hum day in freedumb's land, execs get the gold mine, investors get the shaft.

Tue, 07/24/2012 - 21:35 | 2647740 bigkahuna
bigkahuna's picture

freedumb isn't free.

Tue, 07/24/2012 - 16:37 | 2646910 hedgeless_horseman
hedgeless_horseman's picture



Plenty of support at $0.00*


*Ref: BBI

Tue, 07/24/2012 - 16:35 | 2646914 tu-ne-cede-malis
tu-ne-cede-malis's picture


Tue, 07/24/2012 - 16:35 | 2646919 devo
devo's picture

Moral of the story: don't invest based on Twitter quips.

Tue, 07/24/2012 - 18:25 | 2647350 Al Huxley
Al Huxley's picture

You're telling me - I'm still waiting for my gold shorts to move into the money after taking the plunge based on Rube-ini's "where's your $2000 gold now?" quip back at the start of the year.  But he was so convincing and sure of himself, I couldn't see any downside.

Tue, 07/24/2012 - 16:36 | 2646928 Ineverslice
Ineverslice's picture

Ohhh, aapl.....

What a shame....

How'bout an article, Hilsenrath?  Useful idiot....bernanke Turd.


Tue, 07/24/2012 - 21:57 | 2647756 smiler03
smiler03's picture


$609.68 to $567.80 

$41.88 in one day?

Just as well as you gold bugs ignore the bigger swings in gold about 4 days a week. 

Disclosure, I got out of gold at $1800 with a small loss. I wouldnt touch gold above $1300. I wouldn't buy AAPL if it guaranteed a profit.

I'm poor ;O)

I've just read the next post up, it is funny!

Tue, 07/24/2012 - 23:15 | 2647914 sun tzu
sun tzu's picture

So you sit in cash which loses value as the price of food and energy keep climbing

Tue, 07/24/2012 - 16:38 | 2646955 eclectic syncretist
eclectic syncretist's picture

Apple guides down!!!  Apple guides down!!!

expects $7.65 against analyst estimates of of $10.22!

Put a fork in it boys.  Once the initial state of denial wears off, down she goes.

And if the Fed eases, gold and silver to the moon.  Gotta love it.

Tue, 07/24/2012 - 21:50 | 2647762 smiler03
smiler03's picture

Hopium is obviously very addictive. 

Tue, 07/24/2012 - 16:43 | 2646999 monopoly
monopoly's picture

And people "invest" in these broken markets. Beyond words all, just beyond words.

Tue, 07/24/2012 - 16:53 | 2647010 Seasmoke
Seasmoke's picture

thats ok , they still have wi-fi for iPads at Chipotle that you can watch your Netflix on

Tue, 07/24/2012 - 16:48 | 2647031 pods
pods's picture

I just cancelled my subscription for Netflix.  Just returned a couple golf and kid videos from like 6 months ago.  Never use it.

Decided to watch a TV series we watched last year (Falling Skies) but have not tuned in this year.  Netflix doesn't have it streaming.

Amazon, $2 bucks to watch an espisode.  Run time for the hour long show, 31 minutes.  Bingo.

Netflix is dead because they cannot stream what people want to watch.  

Bunch of garbage B movies, everything else is disc only.  

They are dead as a company, but they just won't go quietly.  

Where the hell are those Death Panels when you really need them?

Cancelled our sub. Will gladly pay $2 FRNs for a half hour show instead of wasting 29 minutes on commercials and an hour of my time.



Tue, 07/24/2012 - 18:58 | 2647403 Shizzmoney
Shizzmoney's picture

Fuck Netflix.

The people who use Netflix are those who either a) are 100% anal about feedback quality or b) don't know how to TRULY use a computer

Tue, 07/24/2012 - 19:02 | 2647416 buzzsaw99
buzzsaw99's picture

It makes no sense that they can't stream everything. What is the point of mailing dvds? How does that benefit the movie makers? All having to mess with constantly mail dvds is to make people angry.

Tue, 07/24/2012 - 16:56 | 2647067 Monkeyfister
Monkeyfister's picture

They haven't added any new content in well over four months.As others have stated, everything is B-Rate at best.

I'm thinking of dropping them, as their services are stuck in a time-warp, and are of little use. So, if people are dropping them, not renewing, then of course their stock value is going to drop.

Their woes are 100% completely self-induced.

Tue, 07/24/2012 - 16:58 | 2647081 MarsInScorpio
MarsInScorpio's picture

All ZH hate and loathing aside, the concept is correct even if the execution is wrong.


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