Netflix Earnings Plunge Tests Tech Bulls' Nerves

Netflix plunged after reporting disappointing subscriber growth Monday, pushing an exchange-traded fund tracking the Nasdaq 100 index down 0.8 percent, according to Bloomberg.

Results haven’t been awful. Netflix actually beat profit estimates and reaffirmed its forecast for full-year cash flow. Particularly for tech stocks, many of which are up another 10 percent in 2018, not awful is not enough.

S&P 500 companies are estimated to have earned $39.18 a share in the second quarter, up 20 percent from a year ago. For technology stocks the bar is higher. The group’s 31 percent expected growth rate is third highest out of 11 industries, behind energy producers and raw-materials suppliers.

So far, tech is having the worst time of the young reporting season. On average, shares in the industry fell 3.4 percent on the first day post earnings despite better-than-expected profits. That compared with a gain of 0.6 percent for S&P 500 companies that have announced results. Only about 30 companies have reported to date, six of them in tech.

Netflix said it added 5.2 million users in the second quarter, about a million fewer than the company predicted. The world’s largest paid online TV network expects to add 5 million customers, a slower pace than a year earlier. A scenario equity bulls have dreaded is a repeat of the first-quarter reporting season, when virtually no number was enough to move the needle in Nasdaq stocks that had risen 30 percent or more in 2017. Netflix was more vulnerable than others to disappointment, with its previously $400 stock up more than 100 percent before the report.