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Netflix's tight culture makes it difficult to avoid surprises



(Bloomberg) – Netflix Inc.'s biggest earnings surprise this year sent the shares down on Thursday. There were also analysts and investors wondering why they were caught so alert.

When some companies know their quarterly results will come out of forecasts, they post a pre-announcement or update the guide. But not Netflix.

Instead, the company drew a bombshell without warning: Customer growth was about half of that projected, and Netflix actually lost US subscribers in the period. It hasn't happened since 2011, when the company made a catastrophic attempt to split streaming and DVD-by-mail operations.

The decline on Thursday included the worst warehouse route in three years, with the shares reduced by 10%. The stop dried out around $ 16 billion in market value.

"You'd think Netflix will update guidance or give a pre-announcement, since I'm sure they definitely knew about it for a while," said Nick Licouris, an investment adviser at Gerber Kawasaki. "But they would probably not do it because they were going to hit a time at that time or during the proceeds – especially since subscriber numbers are number one analysts, look at – and in revenue you can spin it better than a standalone announcement." [19659006] Not necessary?

Another reason not to issue a warning: The company met most of Wall Street's financial estimates, such as sales and profits. Only the subscriber numbers really came up short.

"The proceeds were very close to guidance and the profits were actually over, so I guess they didn't think it was necessary to pre-member a weak subheading when other financial calculations were fine," says Andy Hargreaves, analyst at KeyBanc Capital Markets Inc. [19659009] There has also been a major shift away from providing earnings alerts, said Huber Research Partners founder Craig Huber.

"I have noticed companies in the media and the Internet that I follow do not seem to pre-announce waiting for negative results with the same regularity as years ago, he said.

Netflix, based in Los Gatos, California, did not have an immediate comment. 19659012] Streaming giant's tight culture extends beyond revenue. Unlike traditional media companies, it is very selective about the viewer information it provides. Third parties attempt to fill the gaps by providing their own data on the Netflix audience, but it may be unreliable.

Third Party Services

These types of data services failed to predict the latest loss, said Wolfe Research analyst Marci Ryvicker in a note.

"For several days," she said, "investors told us" so and such data service indicates that domestic supplements will queue; while international can be a bit soft. & # 39; error. I mean – right in the sense that international was soft, but totally wrong with the domestic part. "

Netflix also delivers revenue in an idiosyncratic fashion. Instead of making a traditional Q&A conference, the company releases a" revenue interview "on YouTube with a single analyst, and it also publishes reports on its website, not through the Paid the services that many companies use to disseminate information.

Although this week's warehouse route was particularly severe, it is common for Netflix's earnings to create a large part-movement, with the average change on the day following quarterly reports being nearly 13%, according to data prepared by Bloomberg – Compare it to Apple Inc., where it's 4.4%, or Microsoft Corp., where it's 4.1%.

There is another explanation for the big fluctuations in Netflix stock: overreaction. from CEO Reed Hastings this week. It's easy to "overinterpret" the subscriber numbers, he said.

"Sometimes we forecast high, sometimes we expect low," he said. e ahead and trying to make the best forecast we can. ”

– With help from Morwenna Coniam.

To contact journalists on this story: Kamaron Leach in New York at kleach6 @ bloomberg. Net, Lucas Shaw in Los Angeles at lshaw31@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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