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Red Flags You Should Binge Watch From Netflix Earnings

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Real Money Stock of the Day Netflix (NFLX) investors were impressed with the streaming giant's earnings print Wednesday afternoon, but there were some glaring holes that are almost sure to cause some skepticism.

The stock rose 7.69% to $308.30 a share Thursday after the company beat expectations on subscriber growth and earnings. Netflix posted global net paid subscriber adds for the third quarter of 6.8 million, bearings expectations of 6.7 million. Earnings per share came in at $1.47 against estimates of $1.03.

But there were some holes.

Guidance across the board and management commentary on expectations were nothing like the actual quarterly results.

Management forecast global subscriber growth for the fourth quarter of 7.6 million, missing analysts hopes of 9.5 million. Management is looking for revenue of $5.4 billion, versus expectations of $5.5 billion. Earnings per share is forecast at 51 cents, against analysts hopes for 81 cents.

Netflix management can be known historically for issuing conservative guidance - although it evidently hasn't done so of late - and one Netflix shareholder told TheStreet the company would rather undershoot expectations in the near term so as not to disappoint investors. "There were not a lot of bulls leading into this" and investor sentiment was "very poor," said Ryan Giannotto., director of research at GraniteShares.

But the magnitude of the subscriber guidance miss was large, as the miss was to the tune of 20%. The EPS guidance miss was a 37% disappointment. 

RBC Capital Markets analyst Mark Mahaney lowered his price target to $420 from $450, noting the rising competition Netflix faces. 

And Netflix addressed just that in the earnings print, saying  "we have tried to factor that [competition] into our guidance." Management said "the launch of these new services [from competitors] will be noisy. There may be some modest headwind to our near-term growth." Apple (AAPL) is launching Apple TV Plus for $4.99 a month, Disney (DIS) is launching Disney Plus for $6.99, Comcast (CMCSA) has been clear about its streaming ambitions using Sky TV, and Amazon (AMZN) remains a threat with Prime Video. 

Apple, Disney, Comcast and Amazon are holdings in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these? Learn more now.

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