Shares of Netflix NFLX sunk over 1.7% on Thursday morning, bringing the stock just below the all-time highs it had been trading at this week. Here’s a look at what might be causing the subtle dip.
USA Today Story
On Wednesday, USA Today published a story about the streaming giant’s rise, its competition, and how Netflix hopes to expand going forward. The story detailed Netflix’s venture into 4K ultra-high-definition and touched on its massive and historic Sunset Bronson Studios sound stages.
The piece mentioned also Netflix’s user growth and how its roughly 117 million subscribers compare to HBO’s numbers. CEO Reed Hastings told reporters that the company sees its DVD rental services lasting for at least another five years, which might come as a shock to many customers who didn’t know that Netflix still offered this legacy service.
Yet the real crux of the story, which might have grabbed investor attention, are the sales and spending numbers mentioned. The story noted that Netflix plans to spend $8 billion on content in 2018, which supports the company’s initial fiscal year guidance.
Others might have been turned off by the fact that Hastings acknowledged that there will undoubtedly be some misses in the original content department.
“We always worry about overpaying,” he told USA Today . “It’s a big step for us, a big, concentrated commitment. It has good odds for success. We’re trying to make many bets. Some of our content won’t work, but we’re willing to try.”
But the real reason for concern might lie in the 2018 revenue estimate that the story attributes to the chief executive. Hastings reportedly told reporters that the company expects sales to reach $15 billion in 2018.
On the surface this sounds great, as Netflix reported full-year 2017 sales of $11.69 billion. But our current Zacks Consensus Estimate calls for the company to post revenues of $15.89 billion in fiscal 2018. If the figure that Hastings provided is correct, investors should be worried that it is $1 billion shy of current analyst estimates.
At this point it seems unclear how much weight investors should place on this $15 billion figure, as Netflix didn’t officially provide full-year 2018 guidance in its Q4 earnings report. Netflix noted at the time that its “primary profit metric is operating margin and we are targeting a full year 2018 target of 10%, up about 300 basis points year over year, as in the prior year.”
With that said, investors probably shouldn’t read too much into Hastings’ $15 billion sales figure.
There is also a small piece of possible controversy surrounding Netflix that might have some investors nervous.
In her speech at the Academy Awards, Oscar winner Frances McDormand called for the adoption of “inclusion riders.” An inclusion rides is basically a requirement in an acting contract that calls for more diversity when it comes to hiring the cast and crew.
Netflix’s CEO did not seem to agree with the idea outright, which has some people up in arms. “We’re not so big on doing everything through agreements,” Hasting said in a recent press meeting. “We’re trying to do things creatively.”
He noted that the streaming giant favors talking through issues such as diversity of the project with the filmmakers before shooting begins.
Today’s slip seems like a small blip on what is likely to be a massive run for Netflix as it readies itself to compete for streaming supremacy against Amazon AMZN , and soon enough, Disney DIS . However, some investors will likely want clarification on the 2018 revenue prediction.
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