Netflix Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of through-the-mail and online movie kingpin Netflix (NAS: NFLX) were getting frantically mailed back by investors today as the stock fell as much as 37% after the company reported third-quarter results.

So what: Based on the stock's action today, it might be a surprise to hear that Netflix actually beat analysts' targets for both profit and revenue significantly. For the quarter, the company notched $1.16 in per-share profit on $822 million in sales, easily above the respective $0.95 and $812 million targets.

However, the good news was badly marred by the fact that the company lost more than 800,000 net subscribers during the quarter. While a loss may have been in the cards because of the company's price hike, the size of the loss caught many investors by surprise.

Now what: Let's not get too carried away here. Though the big subscriber loss is significant, total U.S. subscribers are still up an impressive 42% from a year ago. Total company revenue gained 49% year-over-year, while profit per share jumped 66%. To be sure, this isn't a dead company walking.

However, even after today's massive haircut on the stock -- not to mention the 75% drop from its 2011 high -- it's still trading at nearly 18 times trailing earnings. The challenge with richly priced stocks is that investors are expecting a lot and when those hopes aren't met -- or there's at least a concern that they won't be met -- the stock market justice can be swift and brutal.

Want to keep up to date on Netflix? Add it to your watchlist.

At the time this article was published Motley Fool newsletter services have recommended buying shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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