The stock initially swooned after the quarterly results late Tuesday, which smashed expectations but warned that subscriber growth will slow over the next few months.
Later that evening, executives of the streaming service reassured investors on a conference call that impending competition from Apple Inc (NASDAQ:AAPL) and Disney (NYSE:DIS) isn’t as troublesome as some thought, citing the difficulty in shifting from linear to on-demand content.
With the added confidence, plus an analyst note from JP Morgan that raised its price target to $450 from $435, according to MarketWatch, investors spent the pre-market rushing back into the stock.
But since the opening bell, shares have falllen 1.4% to $354.59.
The company, which is behind popular shows such as Stranger Things and The Crown, added a net 9.6mln customers in the opening three months of 2019, better than the 8.9mln analysts had predicted.
That helped to push revenues 22% higher to US$4.52bn, slightly ahead of Wall Street’s estimate of US$4.50bn.
The big beat came at the bottom line though, with Netflix delivering earnings per share of US$0.76; better than the US$0.64 per share it posted in the first quarter of 2018, and well ahead of consensus of US$0.57.
Despite the beats across the board, the stock fell as much as 5% in after-hours trading in New York. It has since recovered some of those losses though, and is currently down 1% to US$355.90, valuing it just shy of US$157bn.
Weak subscriber growth guidance
The sell-off was sparked by a warning that recent price rises have led to more customers in the US and Canada cancelling their subscriptions, although bosses believe this is a short-term issue.
Netflix expects to add a net 5.0mln subscribers in the second quarter – almost 9% fewer than it added this time last year. Only 300,000 new US customers are forecast to sign up.
The weak forecast comes at a time when competition in the streaming space is intensifying. The Walt Disney Company and Apple Inc are both set to launch their own services shortly, while Amazon.com Inc (NASDAQ:AMZN) is already well-entrenched in the sector.
Netflix is spending heavily to stay at the top of the game, so much so that it now expects cash burn to hit US$3.5bn in 2019 – some £500mln more than it had originally forecast, although management is confident this figure will ease going forward.
A couple of reasons to be cautious
Markets.com analyst Neil Wilson said there were two main reasons to be cautious.
“[Firstly,] price hikes are be rolling out across a number of key geographies and this gives management enough reason to be conservative about net new subscriber adds.
“Meanwhile, we should also look at an increasingly competitive space with Disney and Apple recently announcing their own streaming platforms. Further, we should anticipate certain plateaus in the growth cycle.”
-- Updated to include pre-market and intraday numbers --
-- Andrew Kessel contributed to this story --