NEW YORK (TheStreet) -- Is Netflix (NFLX) deluded or just confident? That's the question investors are asking today after the movie rental company issued a cautious statement regarding its subscription price hike but then went on to release an optimistic fourth-quarter outlook.
Netflix addressed the uproar over its hike in subscription rates, saying it does expect to see some cancellations in the third quarter. But apparently, it takes only one quarter to sort it all out, and Netflix not only foresees a return to subscription growth in the fourth quarter, but also expects to hit the $1 billion revenue mark.
"Because of the timing [of the price increase], we announced it at the very beginning of the quarter, we will see the negative effects of it in Q3.That is the elevated churn and lower revenue growth that we would otherwise have."Then the price increase takes effect essentially mid-September on average. So we get a little bit of benefit at the end of the quarter, and then the real benefit comes in the following quarters, Q4 and beyond. But in terms of tracking where we are and our expectations, we're feeling very good," Chief Executive Reed Hastings said on a call with Wall Street. >Click here to take our Netflix poll. "In Q4, we expect domestic net additions to return to a pattern of year-over-year growth while revenue will reflect a full quarter's impact of the pricing changes, which could result in Q4 being our first billion-dollar global revenue quarter, driven by strong U.S. performance," Hasting said. This confidence, Hastings says, is due to Netflix's success with its streaming-only plan. The company has said about 75% of its new subscribers chose the streaming-only plan, even though the DVD plus streaming plan is only $2 more. "With this price change, we're going to be able to strengthen that streaming plan with more content. So that's why we feel good about it," Hastings said. But analysts say Hastings' logic is a bit flawed. "We believe this analysis ignores the opportunity cost associated with winning new subscribers; we believe current subscribers are less likely to promote or recommend Netflix after the price increase," Janney Capital Markets analyst Tony Wible wrote in a note.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV