Netfflix (NFLX) missed revenue estimates when the company reported earnings last night. I was listening to CNBC and I thought I heard the company missed profit views, but this morning when I checked my Thomson the computer screen showed NFLX beat the street.
That’s a synopsis of what’s going on with NFLX right now — the news is coming across worse than it really is. For people who don’t own the stock, the haters might push shares down enough for us to get in.
Price Hike
On July 12th I got an email from Netflix telling me the company was separating the mail-to-your-home plan with the streaming video-on-demand plan, and that I could adjust my plan before the changes go into effect Septermber 1st (I coulda wrote affect).
Right now I’m on the $10 plan that gets me DVD’s through my Xbox and also one in the mailbox. If I keep this plan the price goes to $16 a month, a jump of 60%. I like having the new releases and these are only via mail, yet I also like to see older movies I haven’t seen and use the streaming video for these. Now I can choose one for $8 a month or keep things the way they are for $16.
Whatever I decide on, Netflix wins. The company has been rolling in the profits the past year because people are downloading videos instead of getting them mailed to the home. This saves Netflix postage and processing costs. Less DVDs in the mail = More $ for profits.
Don’t bet on this hurting Netflix
Now, a lot of what we hear on TV is customers will cancel Netflix altogether. Oh yeah? Prove it. What will probably happen is the overall subsctriber base will have less DVDs mailed. Less mail is more $ for profits. The future is streaming video, and that collection of streaming DVDs will grow.
I bet a lot of people will keep the plan they have, which will raise the revenue from these subscribers by 60%. Whew. Profits from these subscribers will skyrocket.
The International Effect (Affect)
The big news with Netflix this year is the company is expanding abroad. Just this month the company said its expanding its streaming video into 43 countries south-of-the-border. Now NFLX will certainly have to purchase new content for its Latin America customers, but the money that needs to be spent is noting compared to how much is paid to American movie companies already.
I think profits from the International expansion will be robust. It will positively affect profits.
Bottom Line
The current news surrounding Netflix is negative. Jacking up prices and expanding to the south will both prove to be catalysts for the stock in the future. Today NFLX stock is down $28 to $253. For a money manager that doesn’t own the stock, this bad news is good to see.
