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Why Is Netflix (NFLX) Stock Plunging Today?

Despite posting a positive earnings beat, shares of video streaming giant Netflix NFLX are down over 10% in morning trading Tuesday. Investors and analysts alike are dumping the stock after the company announced lower-than-expected earnings and subscriber growth expectations.

For the first quarter of 2016, Netflix reported earnings of six cents per shares, which beat the Zacks Consensus Estimate of three cents. Revenues came in at $1.958 billion, which missed our consensus estimate of $1.965 billion. (Read More: Netflix (NFLX) Beats on Q1 Earnings)

In the same report, Netflix released updated forecasts for the second quarter. The company now expects earnings of two cents per shares, which is significantly lower than the Zacks Consensus Estimate of five cents per share.

Furthermore, Netflix said it expects 500,000 net domestic subscriber gains and 2 million net international subscriber gains. Previously, Wall Street estimates were as high as 586,000 net domestic adds and 3.5 million international adds.

Part of the reduction in net subscriber gains will probably be a result of Netflix’s removal of price grandfathering for early Netflix subscribers. Older members will soon begin paying the latest price of $9.99 per month for the streaming service.

In response to the adjustments, Netflix received price cuts from two major analyst firms. Citi analysts reduced their price target for the stock to $106 from $116, and analysts from Cowen reduced their target to $135 to $155.

At the end of the day, continued subscriber growth, although slightly lower than expected, will continue to drive top line growth. Nevertheless, the costs of international expansion are certainly cutting into Netflix’s profits, and the company will need to level its spending eventually.

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