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Netflix Misses Its Q3 Subscriber Numbers, and Its Stock Tanks

Uh oh. "This quarter we over-forecasted membership growth."

Asa Mathat

A first look at Netflix’s Q3 numbers: Revenue of $1.41 billion and earnings of 96 cents, more or less in line with expectations. But just as important are its subscriber numbers, and those are below the company’s forecast and analysts’ expectations. “This quarter we over-forecasted membership growth,” wrote CEO Reed Hastings in a letter to investors.

Not surprisingly, the company’s stock is heading south: Right now, shares are down 25 percent. In English: That’s a drop of more than $113 dollars.

The company missed on both its U.S. and international numbers: It ended the quarter with 37.2 million domestic subscribers, and it had predicted 37.6 million; it also had 15.84 million subscribers outside the U.S., and it had told Wall Street to expect 16.16 million.

Hastings tells investors that some of the miss is due to a price hike the company introduced earlier in the year, and that he doesn’t think it’s from competition from the likes of Amazon, Hulu and cable TV networks like HBO.

Speaking of HBO and its plan to sell a Netflix-like service of its own, Hastings says he’s not surprised: “Starting back in 2011, we started saying that HBO would be our primary long-term competitor, particularly for content. The competition will drive us both to be better. It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we will both prosper as consumers move to Internet TV.”

Netflix has always been a volatile stock, with plenty of investors who buy it because they like the service and the story, and plenty of shorts as well. But even by Netflix’s standards, that’s a staggering loss.

Here’s one way to put a positive spin on it: A year ago, when Netflix’s stock was bumping up against $400, Hastings told investors that it seemed too high to him, and was likely spurred by “momentum-investor-fueled euphoria.”

In the next 12 months the market ignored him and pushed the company’s shares as high as $489. They seem to have finally come around: It’s now back down to $329.

Here’s RBC analyst Mark Mahaney’s helpful cheat sheet so you can interpret the company’s numbers on your own.

This article originally appeared on Recode.net.

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