Netflix swept up in market rout despite strong subscriber signups

Wed Jan 20, 2016 2:09pm EST
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By Lehar Maan

(Reuters) - Netflix Inc's shares fell as much as 10 percent on Wednesday after a widespread selloff on Wall Street overshadowed the video streaming company's impressive subscriber additions in the fourth quarter.

U.S. stocks were on a tailspin, with the Dow Jones industrial average losing more than 500 points, after oil prices continued to plummet unabated.

"People are just taking this opportunity to sell a stock that has been a winner for a long time," Barclays analyst Paul Vogel told Reuters, adding that the subscriber numbers were "pretty good but not exceptional."

Netflix's shares more than doubled last year and trade at a lofty valuation, making them susceptible to sharp declines when broader markets tumble.

The stock trades at about 382.6 times forward earnings, compared with Facebook Inc's 33.1, according to Thomson Reuters StarMine.

Investors were also concerned with the video streaming pioneer's slowing growth at home and aggressive cash burn due to the international expansion.

The company added 1.56 million U.S. subscribers in the fourth quarter, below the 1.65 million it had forecast, and less than 1.9 million a year earlier.

"Investors appear to believe that international subscribers will be as valuable as domestic subscribers (we disagree), and that aggregate international growth will generate consistent profitability, without regard to differing tax, regulatory and cultural environments (we disagree)," Wedbush Securities analysts wrote in a note.   Continued...

Reed Hastings, co-founder and CEO of Netflix, delivers a keynote address at the 2016 CES trade show in Las Vegas, Nevada January 6, 2016.  REUTERS/Steve Marcus