Services & Software

To satisfy Wall Street, Netflix's streaming service must grow

It's earnings day. Investors will judge the health of Netflix's business largely by how many U.S. subscribers the company added during the third quarter.

Netflix CEO Reed Hastings
James Martin/CNET

The Netflix skeptics on Wall Street have been out in force.

Plenty of analysts doubt that Netflix can reach its goal of adding 7 million new U.S. subscribers this year to its streaming-video service.

Netflix is due to report third-quarter earnings after the close of trading today and everybody will be watching the progress of that domestic-subscriber number. In July, Netflix said it expected to add 1 million to 1.8 million new streaming subscribers during the period. That would give the company a total of between 24.9 million and 25.7 million domestic subscribers.

But CEO Reed Hastings has also said that unless the company reaches the high end of that estimate, it would struggle to hit the 7 million subscriber target. Count Youssef Squali, an analyst with Cantor Fitzgerald, among those who think the company will come up short.

Squali predicts that the Web video rental company will finish the year with 5.8 million new streaming subscribers.

Domestic subscriber growth has always been an important data point in determining the health of Netflix's business. The number is even more important now. Investors are trying to determine whether Netflix can add subscribers while the company's streaming library continues to offer few new movies.

Netflix's streaming service once offered relatively newer films from Sony Pictures and Disney through a deal with Starz, the pay TV service. Attempts to renew the contract failed and the rights expired earlier this year. Of the top six Hollywood film studios, Netflix only offers relatively fresh fare from one: Paramount Pictures.

That said, Netflix still streams scads of titles from indie and foreign studios as well as thousands of TV reruns and documentaries for the rock bottom price of $8 per month.

If you believe content is king, then you likely expect U.S. viewers to snub the service. But if you believe that Netflix, with its convenience and unparalleled recommendation engine -- which often helps to dig up something interesting to watch -- is still a value for the price, then you're probably sitting back and buying more Netflix shares.

Netflix shares were down $1.08 to $66.80 in morning trading.