Netflix (NASDAQ: NFLX) released its third quarter results yesterday, and things looked pretty good: net income up 30%, revenue up 16%, subscriber-acquisition costs down 15%, and the rate of subscriber cancellations remained flat.But the company cut its revenue forecast, and net subscriber additions are down 30% so far for October compared to last year. CEO Reed Hasting said (subscription required) that "Since July, conditions have deteriorated markedly. It now appears that there will be continued growth for Netflix, but not as fast as last year." He added that "The state of the economy could explain this modest headwind."
I'm not so sure. Given that watching DVDs at home is a lot less expensive than many other forms of entertainment, it should be somewhat immune to economic woes. In an economy as weak as this one, any struggling company will be quick to blame its woes on the economy. Sometimes that's the case but, often, there are more serious issues that won't be solved by a macroeconomic upturn.
In the long run, it's hard to see what gets investors so excited about Netflix. The growth appears to be slowing, even with a price/earnings ratio of 20 -- which is pretty high in this market.
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