Why Netflix, Sirius XM, and InvenSense Are Dropping After Hours
Oct 23rd 2012 8:19PM
Updated Oct 24th 2012 10:06AM
Markets went into a tailspin today, with the S&P 500 down 1.44% while the Nasdaq saw its own 0.88% drop. Earnings were a big reason for the fall, as stalwarts such as DuPont and United Technologies showed weak earnings.
Yet the tech sector is the one seeing most the news after hours. Let's check in with three different companies to see why they're heading south tonight.
Netflix (NAS: NFLX) is down a heady 16% after hours on earnings news. The big number everyone's looking at is a gain of 1.2 million members, which came at the low end of previous company guidance. Overall, streaming added 1.85 million members, but DVD subscriber defections brought down growth. Next quarter came in a bit lighter than expectations, with midpoint sales guidance at just north of $930 million compared with expectations from Wall Street of $943 million.
Does such a slight miss deserve such an outsized movement? Probably not. Missing sales expectations a quarter from now by 1% and falling 16% doesn't make sense in isolation.
However, the unfortunate reality for Netflix is that 28% of its shares are sold short and investors are skittish that it continues to underdeliver. That'll mean outsized moves whenever the company disappoints. One interesting storyline around the company is how cheap it's become relative to its huge subscriber base, even if that base isn't growing as rapidly as hoped for. Yesterday, Ancestry.com (NAS: ACOM) -- a company with 2 million subscribers -- sold to a private equity firm for $1.6 billion. Netflix, which has 29 million streaming subscribers alone, will probably be valued at just $3 billion after the market opens tomorrow.
That's about 14 times the subscribers at just double the price. You have to wonder at what price interested parties start look into buying Netflix.
InvenSense (NAS: INVN) , a maker of MEMS gyroscopes whose use is exploding in consumer electronics such as tablets and smartphones, saw its shares fall 19% in after-hours trading after it reported earnings.
Were its earnings that bad? Not really. InvenSense is small and underfollowed, but last quarter looked relatively in-line. Instead, the big news was that the company's chairman and CEO, Steven Nasiri, is stepping down immediately. Nasiri founded the company back in 2003, so the suddenness of his departure was a shock.
Wall Street hates uncertainty, and you have to wonder what's going on behind the scenes at the company. In any case, InvenSense will be under a cloud short-term while investors digest the founder's sudden departure.
Speaking of departing CEOs, Mel Karmazin is leaving Sirius XM (NAS: SIRI) effective next February. Unlike the unexpected CEO exit at InvenSense, it's widely been expected that Karmazin might exit stage right as Liberty Media's John Malone angles for control of the company.
Sirius hasn't fallen too far on the news; it was down about 3% in early after-hours trading but has settled back to just a 1.4% loss. A big part of the tempered reaction is the expected nature of the news. Malone is just awaiting FCC approval to take control of the company and has made known he's looking at big changes at the satellite-radio service.
Investors don't seem overly concerned about Malone's plans for the company, as its shares rallied across the summer, long after Malone made his intentions for full control known.
Guidance for the road ahead
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Editor's note: A previous version of this article stated it was InvenSense's CFO on the company's conference call after earnings. The Fool regrets the error.
The article Why Netflix, Sirius XM, and InvenSense Are Dropping After Hours originally appeared on Fool.com.Eric Bleeker has no positions in the stocks mentioned above. The Motley Fool owns shares of Ancestry.com, InvenSense, and Netflix. Motley Fool newsletter services recommend Ancestry.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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