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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):

 

 


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Tue, 07/24/2012 - 16:31 | Link to Comment 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. www.topthenews.com is the website and if you want to email us, editor@topthenews.com PS-My son is in no way involved. Thanks-RT's Mom

Tue, 07/24/2012 - 16:36 | Link to Comment tmosley
tmosley's picture

The font, it BURNS.

Tue, 07/24/2012 - 16:38 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment bigkahuna
bigkahuna's picture

DO NOT SPEAK OF THE ANNUNAKI!

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

The goggles, they do nothing!

Tue, 07/24/2012 - 16:54 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Icantstopthinki...
IcantstopthinkingaboutNINJAs's picture

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

So is the intent to be a drudge report styled news-link page but with the old digg.com 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 | Link to Comment Dr. Engali
Dr. Engali's picture

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

Tue, 07/24/2012 - 17:15 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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... http://tpb.alpha8f.com/

You do need to replace that number 8 with a 7

Tue, 07/24/2012 - 17:19 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Conman
Conman's picture

Lol the NasDapplflix wont be happy tomorrow.

Tue, 07/24/2012 - 22:50 | Link to Comment 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 | Link to Comment zero19451945
zero19451945's picture

Paging RobotTrader....

Tue, 07/24/2012 - 16:34 | Link to Comment 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 | Link to Comment 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.

pods

Tue, 07/24/2012 - 21:31 | Link to Comment 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... https://signup.netflix.com/BrowseSelection

Tue, 07/24/2012 - 16:37 | Link to Comment 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 | Link to Comment 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 | Link to Comment Calidreaming
Calidreaming's picture

apple misses

 

Ha   Ha   Fuck you market

Tue, 07/24/2012 - 16:37 | Link to Comment stocktivity
stocktivity's picture

no way!

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

Wow ! Big miss on Apple!

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

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

Tue, 07/24/2012 - 16:35 | Link to Comment Stackers
Stackers's picture

Everyone is dieing to go to the movies these days.

 

 

What? Too soon ?

Tue, 07/24/2012 - 16:35 | Link to Comment 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 | Link to Comment bigkahuna
bigkahuna's picture

freedumb isn't free.

Tue, 07/24/2012 - 16:37 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

Plenty of support at $0.00*

 

*Ref: BBI

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

Whitney'd

Tue, 07/24/2012 - 16:35 | Link to Comment devo
devo's picture

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

Tue, 07/24/2012 - 18:25 | Link to Comment 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 | Link to Comment Ineverslice
Ineverslice's picture

Ohhh, aapl.....

What a shame....

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

 

Tue, 07/24/2012 - 21:57 | Link to Comment smiler03
smiler03's picture

Ooooooohhh 

$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, http://www.zerohedge.com/news/apple-falls it is funny!

Tue, 07/24/2012 - 23:15 | Link to Comment 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 | Link to Comment 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 | Link to Comment smiler03
smiler03's picture

Hopium is obviously very addictive. 

Tue, 07/24/2012 - 16:43 | Link to Comment monopoly
monopoly's picture

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

Tue, 07/24/2012 - 16:53 | Link to Comment 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 | Link to Comment 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.

pods

 

Tue, 07/24/2012 - 18:58 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment MarsInScorpio
MarsInScorpio's picture

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

-30-

Wed, 07/25/2012 - 08:07 | Link to Comment Icantstopthinki...
IcantstopthinkingaboutNINJAs's picture

Yes,

 

Now let's go find the inventor of webTV and well him that he was 10 years too early.

HTPC indeed.

Tue, 07/24/2012 - 17:00 | Link to Comment dwdollar
dwdollar's picture

"international audience"

LOL...

Maybe they need some content.

Tue, 07/24/2012 - 17:01 | Link to Comment TideFighter
TideFighter's picture

Yeah, but Sally Ride was a muff-bumper. Who new?

RIP, Sally. Ride, Sally Ride. 

Tue, 07/24/2012 - 17:01 | Link to Comment TideFighter
TideFighter's picture

Yeah, but Sally Ride was a muff-bumper. Who new?

RIP, Sally. Ride, Sally Ride. 

Tue, 07/24/2012 - 17:05 | Link to Comment otto skorzeny
otto skorzeny's picture

they have reached maximum subscription

Tue, 07/24/2012 - 17:13 | Link to Comment adr
adr's picture

But I thought Reed posted on Facebook that Netfux was going gangbusters?

Tue, 07/24/2012 - 17:52 | Link to Comment FearedDevil
FearedDevil's picture

Beautiful pullback into the channel edge.  For non technical traders - this is a gift

Tue, 07/24/2012 - 18:20 | Link to Comment tamboo
tamboo's picture

you can no longer rent dvds by mail without also paying for the shitty streaming service as well?!?

blow me!

i couldnt even find a search box to see if they had what i wanted.

scrapetorrent ftw!

Tue, 07/24/2012 - 19:04 | Link to Comment Tanz der Lemminge
Tanz der Lemminge's picture

You can't get old stuff streaming either. For example Hogan's Heros or McHale's Navy - they are available on DVD only. I should listen to my wife and cancel - it is too expensive

Tue, 07/24/2012 - 19:31 | Link to Comment I should be working
I should be working's picture

NFLX keeps ramping up and then crashing and I keep asking myself why? Just for the ramping part, the crashing makes total sense.

Tue, 07/24/2012 - 19:55 | Link to Comment drivenZ
drivenZ's picture

actually, not long after Tilson made that reversal call and went long the stock rallied like 75% and hung there for 2 months. So if he sold he's alright, if he held then yes he's still an idiot.  

Tue, 07/24/2012 - 20:01 | Link to Comment LG_Knight
LG_Knight's picture

Netflix mobile streaming is for the younger generation, not ZH audience. Kids no longer watch TV nor do they browse the web on PCs.

That means years of bigtime viewing hours growth while subs grow steadily. Bottom line, Netflix will be a strong part of next gen media entertainment.

Like most generational tech discontinuities, y'all won't grasp this until it becomes obvious.

Tue, 07/24/2012 - 20:31 | Link to Comment haskelslocal
haskelslocal's picture

Fundamentally flawed.

Kids don't pay the bill for their streaming.

Kids will get over 3 inch screens and go back to 42. 

Content providers will always be the bottleneck.

 

Tue, 07/24/2012 - 23:23 | Link to Comment LG_Knight
LG_Knight's picture

As I said, you won't believe it until obvious.

Kids (12-22) grow up and shape media and buying behavior for the next 15-20 years. And parents support them in the interim.

Check back in about five years.

Tue, 07/24/2012 - 22:38 | Link to Comment GMadScientist
GMadScientist's picture

No, Netflix has a habit of pissing off their own customer base; not a good survival trait.

They are bare in the wilderness and bleeding enough for others to smell opportunity.

Cancelled 2 years ago. Never looked back. This generation can run BitTorrent and Tor. Get over it.

Tue, 07/24/2012 - 21:56 | Link to Comment Riquin
Riquin's picture

Sold my shares of Netflix as soon as they mentioned a change to their business model several months ago. The current management damaged the brand big time. The current management has to go as well as the board. It reminds me of AOL.

As a customer I also dropped the online portion and only use the mail in of CDs.

Tue, 07/24/2012 - 21:57 | Link to Comment lbrecken
lbrecken's picture

i guess that Brecken guy on CNBC was right after all .....what a acct scheme to enrich mgt.......

Tue, 07/24/2012 - 22:02 | Link to Comment lbrecken
lbrecken's picture

The whole scheme was to engineer EPS by defering the costs thru extending the streaming expenses vs. DVD.....as the sales shifted it appear to boost EPS but CF as I pointed out never followed thru and thus EPS wouldnt either......this the streaming boon doggle is what it is....and mgt has gotten away with it..10 years ago no way they would have.....

Tue, 07/24/2012 - 22:20 | Link to Comment q99x2
q99x2's picture

They're lying. They missed by more.

Tue, 07/24/2012 - 22:35 | Link to Comment GMadScientist
GMadScientist's picture

Eat your streamed peas!

Wed, 07/25/2012 - 04:04 | Link to Comment Me_Myself_and_I
Me_Myself_and_I's picture

I've been greatly enjoying my newfound appreciation for lattes.  Thank you Reed Hastings for clueing me in to the complete waste-of-money proposition (aka NFLX) represented by your company.  

Foreever flattered,

- MM&I 

Wed, 07/25/2012 - 08:47 | Link to Comment frank weeden
frank weeden's picture

Will Whitney Tilson get into the buyout game, LBO Netflix, and then Merge it with the United States Post Office? #Synergy

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