Netflix (NFLX) Down Big on Earnings

Apr 19, 2016

Netflix (NFLX) is down 11% today after reporting stronger-than-expected earnings but lowered guidance for international subscriber estimates.  Notably, NFLX has  averaged a move of +/-13.8% on its earnings reaction days throughout its history as a public company, so today’s 11% decline is actually less volatile than normal.  Using our Interactive Earnings Report Database, we pulled all earnings reaction day drops of 5%+ for NFLX.  Since 2002 when NFLX went public, the stock has experienced 5%+ drops following earnings 24 times!  That’s pretty amazing when you think about how well this stock has done over the years.  If you owned the stock and then sold it following any of these big one-day drops on earnings due to quarterly numbers that investors obviously interpreted negatively, you likely missed out on big gains.  As recently as October 2014, the stock dropped 20% in reaction to its Q3 2014 numbers, but since that day the stock is up 100%+.  Plenty of investors that loved the company heading into that earnings report got spooked and sold after the 20% drop.

In the table below, we show the 24 prior quarters where NFLX fell 5%+ on its earnings reaction day.  We also show how the stock performed on the day after the big drop, over the next week, month, and three months as well.  At the bottom of the table, we show NFLX’s average and median change over all four time periods.  As shown, NFLX has typically bounced back in the weeks and months after big earnings drops.  That’s not surprising given the stock’s upward trajectory over the years, but median returns following big earnings drops have been even stronger than median returns over any given one-day, one-week or one-month period for the stock.  The only time frame where the stock has underperformed on a median basis is over the following three months (8.22% vs 13.62%).