The Key Takeaway From Netflix's Third Quarter

Netflix Inc. (NFLX) operates as an Internet subscription service company that provides subscription service streaming movies and television episodes over the Internet. It majorly operates in three segments Domestic streaming, International streaming and Domestic DVD. The company reported its third quarter earnings on the October 15, and the results were not very impressive. The stock market also reacted to the announcement and resulted in about 20% drop in stock price in after-hours trading. So, why the third was quarter such a disappointing one that nearly sank Netflix in the stock market. Lets get into the quarter details to derive the answer.

A quick look at the number mix

Revenue stood at $1.41 billion, a 27.4% increase from that of last years similar quarter. The revenue was up 5.1% from that posted in the second quarter of the fiscal year. 25% of the revenue was earned through international sources, and the revenue generated through domestic sources went by 25.1% as compared to last years third quarter.

However, the revenue generated from the domestic DVD business line saw a dip of 16% on a year-over-year basis.

The contribution profit improved by 400 basis points, mainly due to the 50.7% increase in contribution profit from domestic sources. Net income also saw a lift from $32 million reported in third quarter of 2013 to $59.3 million in the same quarter of 2014. In terms of earnings, this translated to around $0.96 per share in the quarter.

Analysts were expecting earnings of $0.91 per share on revenue of $1.41 billion, and the top and bottom line met their expectations.

But there were certain signs which could move the earnings to the red, if not taken care of. Also, the guidance for the fourth quarter is dim from the management end. And there is competition coming up as well. Lets get to these points in the upcoming section.

The decline in subscriber additions

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The Key Takeaway From Netflix's Third Quarter