Netflix Plunges After Cutting Q3 Outlook, Sees Q4 Loss

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):