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Netflix: A Dose Of Reality

Summary

Subscriber growth did not impress.

US price raise will lift churn, can international offset this?

A decision on the DVD business may be needed soon.

One of Tuesday's worst performers is Netflix (NASDAQ:NFLX), after the company's Q1 report was a little underwhelming. The revenue figure was a little light, and subscriber growth also disappointed. Netflix is facing some big challenges this year, and how the company can work through these difficulties will determine whether the stock can rebound from here.

The drawn out price raise for US subscribers is starting to work its way through the system, part of the reason for management guiding to just half a million net adds in Q2, versus 0.9 million in the year ago period. Additionally, the fact that Amazon (NASDAQ:AMZN) has launched a standalone option for Prime Video is making some investors uneasy. With Amazon's balance sheet in much better shape than Netflix's, the battle for content will only get hotter.

While some may be surprised at the US slowdown, I certainly am not. One of my predictions for this year was that Netflix would add less than 5 million US streaming subs. Don't forget that the company will face another headwind during Q3 from the Summer Olympics, which has been given as a reason for light sub adds...


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