A modern financial reality in IT: lower numbers of new users lead to a 14% drop in Netflix market value

According to a news published in Fortune.com, the value of a well-known media company Netflix experienced a 14% drop it its stock value. What does it take to experience such a hit in a modern IT industry?

Netflix app icon on a smartphone screen. Image credit: Shardayyy via Flickr, CC BY 2.0

It turns out, not much is needed for a similarly-rated financial disaster. Netflix is till growing in numbers of new subscribers. In fat, just in a second quarter of this year the company gained approximately 5.2 million new users to its ‘fleet’. However, market analysts forecasted this number to be substantially higher, almost twice higher than what company announced in its earnings report. For example, according to market expectations, number of new users in U.S. alone should have been ~1.2 million; meanwhile, the actual number was ‘just’ 670.000.

These numbers are still quite high, and it can be just a temporary slowdown for a company like Netflix. Despite this, modern IT and internet market has its own rules, and investors usually heavily react even to temporary negative trends. But the technical question remains: as the theoretical number of internet service users in our planet is limited, any company operating on similar model of business is posed to hit the ‘wall’, sooner or later.

On the bright side for Netflix, it holds strong positions against any of its rivals. If it manages to keep on producing interesting and new content, it should maintain its advantage over companies like Amazon Prime Video or HBO. And in terms of its finances, the company managed to raise its revenues by a solid margin of 40%, up to 3.9 billion dollars, income per share increased to 85 cents, even above what the Wall Street experts have been expecting for.

Netflix achieved good financial results even despite its huge spendings on original programming, which is forecasted to reach $12-$13 in year 2018.


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