At boom or doom?

Netflix Inc. (NFLX), the world’s biggest video-subscription service, tumbled 13.9% after forecasting lower-than-expected growth of US streaming customers. NFLX, which is also expanding in Latin America and UK, reported a net loss of $4.58 million, or $0.08 a share on the first quarter, which is smaller than the expected loss of $0.27 a share. Revenue came in at $870 million which topped analysts’ expectation of $867 million.

NFLX reported a loss of 800,000 United States subscribers from July to September 2011, but made up for the loss with 600,000 new customers signing on in the fourth quarter. NFLX will likely end the second quarter with 24.2 million domestic online subscribers, up from 23.4 million on March 31. That suggests only 200,000 to 800,000 user additions, less than the 1.74 million additions in the first quarter.

NFLX is currently trading at 22.8x P/E’ and an EV/IC’ of 3.8x, which are at the high end and the low end, respectively, of historical valuations. The market appears to be pricing in a return of only 16% compared to historical ROI’ due to the loss of subscribers, with a CAGR of 9% over the next five years. Consensus estimates are in the range of 8% to 16% in the same timeframe. It appears that the consensus estimates for ROI’ in FY2012 was low at 8% as they expected more headwinds in subscribers growth.

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