Through it all, NFLX bulls called me every name in the book. In their eyes, I was a complete moron for predicting the pending implosion of a stock that did nothing but go up. Until it went down. And when NFLX went down, it went down hard.
All of a sudden, the media and analysts started regurgitating many of the themes that a few of us had been pounding for months, well before Netflix raised prices and attempted to separate its streaming and DVD businesses.
Tuesday afternoon, Netflix reported second-quarter earnings that beat Wall Street estimates. Despite concerns to the contrary, the company returned to profitability in Q2 and anticipates staying there in Q3, though it did leave room in its guidance for a loss.I can really only pull two negatives out of the report. One, Netflix thinks the Olympics might hurt Q3 viewing and sign-ups. This could cause the company to miss full-year guidance of 7 million domestic net subscriber additions. Honestly, I think that's Reed Hastings resetting expectations too low. He overstates the potential impact of the Summer Games. Translation: Nobody in America really cares about them. It's like saying the Stanley Cup Playoffs or this weekend's golf tournament will hurt Netflix. Two, Netflix will enter an additional international market in Q4. It warns in its Q2 letter to shareholders that this expansion will "temporarily" push the bottom line "back into the red."
Talking Like a StartupBeyond that, things look better at Netflix than they have in a long time. Gone are the days of misguided share buybacks. Welcome to the era of plowing domestic profits into what Hastings called a "once-in-a-generation opportunity" to be one of the globe's dominant video streamers. (Hear it on the conference call, available at the company's investor relations Web site). Hastings also discussed his plans to expand to a new international market, return to profitability, expand to a new international market, return to profitability. This is more like it. It sounds closer to the Amazon.com (AMZN - Get Report) perpetual-startup model I can get with. Finally, Hastings speaks of a "virtuous cycle" that I can stamp with an endorsement.
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