Today: Netflix (NFLX) earnings show subscriber bump during quarter of "Arrested Development" debut were not as large as hoped, stock descends. Also: Yahoo (YHOO) stock drops after activist investor cashes out, Apple (AAPL) gains slightly ahead of earnings.
The Lead: Netflix stock declines despite growing profits, revenues
Netflix's profits and revenues exploded higher in the second quarter, but the Los Gatos video-on-demand company did not add as many subscribers as analysts hoped during the period, which included the debut of a new season of "Arrested Development," and a conservative forecast pushed Netflix's ballooning stock price down in after-hours trading.
Netflix reported profits of 49 cents a share on revenues of $1.07 billion, a substantial gain from the same quarter in 2012, when the company earned 11 cents a share on revenues of $889 million; the results surpassed analysts' forecasts for profits of 40 cents a share and met revenue expectations.
Subscriber growth was a disappointment, however, as Netflix reported a gain of 630,000 subscribers, far short of the top of the company's projected range, which was 880,000. Analysts also had higher hopes, with Wedbush Securities analyst Michael Pachter predicting that "Arrested Development" would account for 500,000 new subscribers on its own, pushing growth as high as 1.3 million new subscribers. Instead, CEO Reed Hastings and Chief Financial Officer David Wells said in a letter to shareholders that "Arrested Development" resulted in a "small but noticeable bump" in subscriptions.
Netflix's forecast for the current quarter was also below analyst expectations, as the company's wide range had a midpoint of 43 cents a share, below forecasts of 45 cents a share.
Netflix stock has been the best performer in the Standard & Poor's 500 in 2013 as the company has premiered high-profile original series for adults that garnered the first major Emmy nominations for an online-content company. That rise has made Netflix shares the second most expensive in the broad-based index on a price-to-earnings ratio basis, and shares fell in after-hours trading, with analysts saying that the price left Netflix little to no room for error.
"It was a very good quarter, by most standards, but that doesn't cut it when your stock has risen by 200 percent," Pacific Crest analyst Andy Hargeaves told The Associated Press.
"The stock was priced for perfection going into the quarter, hence the sell-off," Evercore Partners analyst Alan Gould told Reuters. "They didn't beat on the subscriber numbers."
Netflix stock dropped 1 percent to $261.96 in Monday's regular session, then fell to less than $250 a share in late trading.
Elsewhere in Silicon Valley, two semiconductor-related companies released results Monday, with different results. Fremont's Volterra Semiconductor reported drastic drops in its profits and revenues as its notebook business declined, but Hayward chip-equipment company Ultra Clean managed to boost revenues 8 percent year-over-year and post a profit after chalking up a loss in the same quarter a year ago.
SV150 market report: Yahoo declines amid departures; Google and HP bounce back
The Standard & Poor's 500 closed at a record high for the third consecutive session Monday, but tech stocks trailed the overall markets as Yahoo suffered at the hands of investors concerned about the exit of an activist investor who has had his hands in many of the Sunnyvale company's changes in the past year-plus.
Third Point head Daniel Loeb sold two-thirds of his sizable stake in Yahoo back to the company for a profit of more than a half-million dollars and will leave the board, along with two of his chosen directors. Loeb uncovered lies on former Yahoo CEO Scott Thompson's resume not long after he was named to the position in 2012, leading to Thompson's ouster and a deal between the hedge-fund maestro and Yahoo that placed Loeb and his choices, Harry Wilson and former MTV President Michael Wolf, on the board.
With Yahoo stock flying high a year into new CEO Marissa Mayer's reign, thanks to strong growth from Asian investment Alibaba, Loeb cashed out, saying in a statement, "with Marissa at the helm and her team's focus on innovation and engaging users, Yahoo has a bright future." Other investors did not see the move that way, however, possibly believing Loeb was cashing out at the top of Yahoo's curve and following suit: Yahoo shares dropped 4.3 percent to $27.86 in heavy trading that resulted in a volume more than twice Yahoo's average. Loeb wasn't the only departure from Yahoo on Monday, either: Yahoo confirmed a report from AllThingsD that a senior media executive, Mickie Rosen, was leaving the company.
Gains elsewhere in Silicon Valley helped balance Yahoo's decline, as the SV150 index still managed a slight increase on the day thanks to improvement from the biggest tech companies in the region. Apple moved 0.3 percent higher to $426.31 a day ahead of its earnings report, when investors are expecting to see more proof that Apple needs a new breakthrough product; Monday reports suggested that Apple is planning to stay on the road of different sizes for its signature products, however, while the Cupertino company admitted its developer site had been the subject of an attack. Google (GOOG) had a better day on Wall Street, bouncing back from a poorly received earnings report to gain 1.6 percent to $910.70 while preparing for a Wednesday event expected to include new Nexus 7 tablets and announcing an investment in the chip company the Mountain View search giant used for Google Glass. Hewlett-Packard (HPQ) rose from the mats after the personal-computer industry was kicked in the teeth Friday, gaining 1.5 percent to $25.51, but chipmaker Intel (INTC) dropped another 1.2 percent to $22.77 despite announcing a new low-power server chip. Facebook gained 0.6 percent to $26.05 as the Menlo Park social network said 100,000 users were accessing its service through non-smartphones, while eBay (EBAY) increased 0.2 percent to $52.31 after announcing an expansion for its same-day delivery service.
The SV150 index of Silicon Valley's largest tech companies: Up 1.62, or 0.13 percent, to 1259.56
The tech-heavy Nasdaq composite index: Up 12.78, or 0.36 percent, to 3,600.39
The blue chip Dow Jones industrial average: Up 1.81, or 0.01 percent, to 15,545.55
And the widely watched Standard & Poor's 500 index: Up 3.44, or 0.2 percent, to 1,695.53
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.