Netflix slows down on Wall Street despite recent success

The Takeaway

(Photo Courtesy of Flickr user jovino)

Netflix, the best-performing American stock on the S&P 500 this year, has turned DVD rental and online video streaming into big business that seems likely to continue growing. 

The company has had a fantastic fiscal year, as reflected in its stock price, which has increased 184 percent in the last year.

Despite all the momentum, though,  Netflix's second-quarter results, released Monday, fell short of analysts' estimates. Netflix added 630,000 subscribers for the quarter, short of forecasts of about 700,000. The company now has 29.8 million subscribers in total. 

Recent gains mark a large-scale comeback after the company lost 800,000 subscribers after a 2011 price hike. Since then, Netflix has generated buzz with original content, including the Emmy-nominated House of Cards and Arrested Development, the first online-only television shows to earn that honor.

"Starting with House of Cards, it's really created some amazing buzz, but also a potentially disruptive technology that's sort of changing the way people consume television," said Laura Hudson, culture and entertainment editor for Wired Magazine.

Netflix and rival streaming services, like Hulu, Amazon, HBO and Apple, have taken the next logical step after the invention of recording devices like Tivo, which changed the way people watch TV. With the ability to record shows, viewers are no longer beholden to scheduled air times. They can watch shows whenever and increasingly, on whichever device they choose. 

"The Netflix model, where they're actually releasing an entire season of a television show at the same time, this time shifts not just a single episode but a whole season of a television show and that's very different," Hudson said.

In the future, Netflix expects to expand its growing library of original content with feature-length documentaries and stand-up comedy specials. In a letter to shareholders, CEO Reed Hastings and CFO David Wells wrote that they would be "delighted to produce a fifth season of Arrested Development, if possible, given fan reaction."

Streaming exclusively to an online audience allows Netflix to push boundaries that network television can not, Hudson said. Orange is the New Black, for example, features prominent women of color and transgendered women and faces otherwise not often seen on the television screen, she said.

"That's something that's possible on Netflix, I think, in a way that often isn't on network television, or even channels like HBO and AMC because they don't live and die by how well the ratings on the third episode do," Hudson said. "There's no pressure."