Netflix shares drop after second-quarter revenue disappoints

Netflix shares take a hit after 2Q results

NEW YORK — Shares of Netflix Inc. took a hit Thursday after the online movie subscription company narrowly missed Wall Street’s revenue expectations in the second quarter.

THE SPARK: Though Netflix added a million new subscribers and beat analysts’ earnings estimates, the company’s average revenue per user declined, as many new subscribers signed up for its low-cost $9-a-month plan. The company has enjoyed enormous success recently, as more and more customers embrace its combination of DVD-by-mail and online video streaming service. Even with Wednesday’s drop, the stock is trading at more than double the value it was at the start of the year.

But the company will likely be “challenged to grow at its current pace for more than another year, and we expect its premium valuation to collapse,” wrote Wedbush Morgan analyst Michael Pachter, who has an “Underperform” rating on Netflix.

THE ANALYSIS: “Netflix delivered a strong quarter, without question, delivering solid upside on gross margin, net subscribers, and (earnings per share),” wrote Signal Hill analyst Todd Greenwald in a note to investors. But he added that other metrics, including revenue, subscriber turnover and average revenue per user, disappointed.

“Given the stock’s meteoric rise over the past 7 months, we expect shares to pull back following the slight miss on the multiple key metrics,” the analyst added. Greenwald rates Netflix “Hold.”

SHARE ACTION: Shares of the Los Gatos, Calif.-based company fell $13.37, or 11 percent, to $106.28 in morning trading. Even so, the stock is still up more than 90 percent year-to-date.