The research team correctly predicted that Netflix would beat estimates here. Netflix did indeed beat estimates, reporting earnings of 11 cents a share, compared to the I/B/E/S consensus of 5 cents a share. Although the SmartEstimate correctly anticipated that the company would beat estimate, and the company did indeed beat estimates, the stock is down more than 20% today. So what gives?

Part of the problem is the uncertainty in the guidance offered by management. The guidance for earnings in the next quarter was between a loss of 10 cents a share and a profit of 14 cents a share. The consensus estimate was for a profit of 11 cents a share.  That large range in guidance is enough for someone to drive a truck through! Management pointed to the Olympics as being a short term head wind for the company. The company is also aggressively expanding internationally, and that is going to hit earnings in the coming quarters. The company is also continuing to spend on its content library. The payoff for these investments may not be immediate; it will be at least a couple of quarter before we see the benefits from these investments. In the mean time, the company continues to look expensive. To justify the current stock price the company earnings will have to grow at 9% over 10 years. If the spending continues at this pace, without top line growth the company may actually be in the red for 2012. Although Netflix may still be in the early stages of a turn around, this turn around could take quite some time to materialize, in the mean time hang on to your hats, it could be a wild ride!