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Why Netflix and eBay slumped on tech earnings

Dan Ives, head of tech research at GBH Insights, explains why disappointing Netflix subscriber numbers and a 14% sell-off are not derailing his bullish case.

Victoria Scholar @VictoriaS_IG
Analyst, London

Publication date : 2018-07-19T16:27:57+0100

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‘Strong, but not stellar’ quarter for Netflix

Netflix reported second quarter (Q2) total net subscribers of 5.2 million, below expectations for 6.2 million, sending shares down by 14% in the after-hours session. It was the biggest slump in the share price since July 2016, which was also prompted by disappointing subscriber numbers. The streaming giant also guided for weaker than expected subscriber growth for the current quarter, projecting 5 million total subscribers, below forecasts for 6 million. Despite this, earnings per share reached 85 cents, topping analysts’ expectations for 79 cents. On the top line, revenue hit $3.91 billion, broadly in line with forecasts for $3.94 billion.

Slowing subscriber growth spooked investors amid rising competition in the streaming space from Amazon, Apple, Facebook and others. New players are also entering the market, including Disney, which plans to launch a rival streaming service in 2019. Some analysts are also concerned about the level of the company’s spending on content. Goldman Sachs is forecasting Netflix will spend as much as $22.5 billion per year on content by 2022, according to CNBC. However, Dan Ives, head of tech research at GBH Insights, said the ‘content arms race continues to be a major tailwind for the company over the next 12 to 18 months’. Ives said he would be a buyer of Netflix on this weakness. Shares in Netflix are still up 95% year-to-date.

eBay slumps on guidance

Shares in eBay slumped nearly 6% after-hours, after the tech company released disappointing guidance for this quarter and downgraded its full-year sales estimates. The company is expecting Q3 adjusted earnings per share (EPS) of 54 cents to 56 cents, just below Bloomberg forecasts for 56 cents. Net revenue also disappointed, coming in at $2.6 billion, just below estimates for $2.66 billion. However, the e-commerce player reported Q2 adjusted EPS of 53 cents ahead of Bloomberg estimates for 51 cents.

Netflix and eBay are all-sessions stocks on the IG platform, which means you can trade them out of hours.

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