Netflix's Earnings No 'House of Cards': What Wall Street's Thinking

NEW YORK ( TheStreet) -- Second-quarter earnings from Netflix ( NFLX) were better-than-expected, yet shares fell following the results, as subscribers missed Wall Street estimates.

The Los Gatos, Calif.-based Netflix reported earnings of 49 cents per share on $1.069 billion in revenue. Analysts surveyed by Thomson Reuters expected Netflix to earn 40 cents per share on $1.07 billion in revenue for the second quarter.

The company added 630,000 domestic streaming subscribers, bringing the company's total to 29.84 million domestic streaming subscribers during the quarter, but that was lower than the 700,000 subscribers analysts expected.

It seems as if Netflix has figured out significant margin expansion from its streaming business. Margins continued to expand, growing to 22.5% during the quarter, a gain of 190 basis points sequentially.

Here's what some analysts on Wall Street had to say regarding the quarter.

Cantor Fitzgerald analyst Youssef Squali (Hold, $260 PT):

After a year of meteoric rise, we're downgrading NFLX to HOLD from BUY on the back of in-line 2Q:13 results and guidance. We remain fans of the model and service longer-term, given its expanding selection, improving personalization, and unique position as a key beneficiary of the rise of Internet TV.

Credit Suisse analyst Stephen Ju (Neutral, $236 PT):

Despite the modest shortfall in Domestic and International streaming subscribers versus our estimates, we do not feel that the 2Q13 results were thesis-changing in nature. The variance of less than 1% versus our projection does not necessarily mean that Netflix's aim to attain 60-90mm domestic subscribers is invalid. Once again we have moderated our projections for content acquisition costs (which we had previously projected to scale to over $3b by 2015) over the next five years and given the high sensitivity to contribution profit as well as the low share count, results in material changes to our target price.

Oppenheimer analyst Jason Helfstein (Perform, $259 PT):

Following better than expected 2Q margins and 3Q guidance, we are increasing our target to $259 from $195, but maintaining our Perform rating on valuation. Results for Q2 exceeded expectations on contribution margins, while guidance for 3Q domestic streaming margins is 11%/9% above Opco/Street (at midpoint) on lower content spending. Lowering '13E non-GAAP EPS by 15% on increased int'l investment, but leaving '14 estimates relatively unchanged on improved Int'l subscribers. Increasing target to $259 based on 2015 estimates discounted 10%. Assumes 20x US non-GAAP earnings and 3x (was 2x) Intl. sales.

Jefferies analyst Brian Pitz (Underperform, $160 PT):

2Q was mixed with somewhat disappointing US streaming sub adds offset by lower mktg costs and continued margin expansion. Originals like House of Cards received 14 Emmy nods, as Arrested Development (known quantity with cult following) also launched. With the associated publicity NFLX enjoyed its lowest S&M expense (% of rev) since 3Q'11. But at 109x our '14 EPS, NFLX is more expensive than when we d/g to Underperform (Apr) at 95x.

Shares of Netflix were lower in early trading, off 3.4% to $253.00.

-- Written by Chris Ciaccia in New York

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