NETFLIX STOCK IS COLLAPSING, THE SUBSCRIBERS NUMBER IS DECREASING, THE REVENUE IS FALLING: WHAT`S FURTHER?

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Netflix Inc. posted a report on the number subscribers and the revenue for the second quarter. The numbers are significantly below expected. This immediately influenced the stock value of the company, which was sent into a sharp dive during the trading hours after the report was published.

Netflix shares were traded 12% lower than after the Los Gatos, a company based in California, announced, that it has added more than 5 millions of users during just the second quarter. And this is much lower than the number of streaming users added in April only. When the company published the reports about the international subscribers, added during the last quarter, the situation got even worse. The number was 4.47 million international subscribers in comparison to 5.9 million during April only.

So, what is happening with Netflix stock? Will it continue falling or there is a chance for it to recover?

The company reported 384 mln USD of profit, and this means, their shares were 85 cents worth, and this is a good advancement, if you consider, that during the same quarter previous year, the company had just 66 mln USD, or just 15 cents per share. And previous year, the company increased its revenue from 2.79 mln USD to 3.91 mln USD.

So, the trend was very good, till recently. However, the company is trying to calm down the shareholders, and have already published a letter, saying that the company had a “string but not stellar” quarter. As well, the company states, that they have forecasted the drop of subscriptions number.

The company claims, that they have already seen a similar drop, just some time ago, in 2016. And they couldn’t find a proper explanation why this happened. However, the company was performing finely after that. The investors however continue questioning in doubts whether it was a one-quarter drop or it is going to turn into a constant trend.

The analysts believe that this is, most likely, just a temporary drop, conditioned by many factors, most of them are unknown, because they have never been investigated or researched properly.

All companies, even Apple and Amazon, have such sudden drops that are difficult to explain, and nobody worries about it. Things normalize after a while, and the company just goes on with its affairs. So, there are no reasons for Netflix investors to get worried, as well.

As well, one of the drops reasons, Netflix specialists, believe, is the strengthening of the US dollar. So, the consequence is a lower international revenue of the company. The company forecasted the revenue of 65 mln USD, but as dollar got stronger, the sum in dollars decreased. Netfxlis doesn’t hedge revenues with derivatives, so, the dollar price in comparison to other currencies made its influence.

Netflix specialists claim, that they are adjusting prices when the currency rates change, but time is needed for a proper balancing. Si, when the dollar rate jumps so rapidly and so significantly, there is not much to do about it. And yes, then, it influences the income of the company in a rather negative way.

As well, Netflix pays attention to such negative factor as increasing competition from other companies that work in the entertainment field. Many of them are focusing now on the providing services through the internet, and customers see is as an evident advantage.

The company believes, that a broad range of content has a right to exist, because the customers are different, and their preferences are different. So, the company has released recently the next debut of Sci-fi Action series “Lost in Space”, and as well, appeared the new season of “13 Reasons Why”. Along with science fiction, Netflix prepared for its customers some romantic comedies, such as “Set It Up”, and “The Kissing Booth”. These comedies are the favorite ones by millions of Netflix subscribers, as the company claims.

Hastings, in his earning interviews, explained, that Netflix has a particular set of genres with which it works, and under no conditions, it is going to start with new genres, like gaming, audio content, news and similar. Movies and TV – this is what the company was founded for, and this is what it is going to make.

The company started working also with non-English products. It released the second season of “3%”, this is a science fiction thriller from Brazil, then, it appeared the Indian original movie “Lust Stories” and “The Rain”, a Danish thriller. Customers are also wondering, if the increase in production would influence the movies quality. But for now, the things went finely, and the new movies are enjoying success which is unusual for originally non-English movies.

The main focus of the company is content push, Netflix spends in it 576,7 mln USD just during the previous quarter. David Wells, the chief financial offices of Netflix, tells that all these expenditures, around 80-85% of them, are used for building the brands for titles, and that in future, it should pay off.

Netflix is also famous for its expenditures on development and technology. Just during the last quarter, the sum amounted up to 317.2 mln USD. and last week, “Smart Downloads” were presented in the market. This is a feature that is targeter to users who prefer to watch content on their mobiles and tablets. After watching the episode, the feature deletes it and downloads the next episode. The entire process is fully automatized.

Analysts are however worried about the losses of the company. For example. During one quarter only, the company burned 559 mln USD, which is much more than the profit declared for the same period. And the more the company burns, the more losses it has. However, the company representative claim, that they have anticipated these losses. Moreover, they insist, that during the second half of 2018, the company will have around 3-4 bln of negative cash flows.

Netflix completed the bond deal that they have made recently. The company got 1,9 bln USD, and now, its debt amounts to 8.4 bln USD.

Wells insists though, that the company sees debt as the most profitable choice, as the most effective capital source for the company. Of course, the company would like to be completely self-funding, but until that happens, the debt is the best choice in capital terms.

This year, Netflix is improving significantly, showing a huge increase of 109%.

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