What Wall Street's Short-Sellers Are Thinking About After Netflix's Earnings Webcast

Netflix beat Q2 earnings estimates this evening and followed their numbers up with a webcast moderated by CNBC's Julia Boorstin and hosted by a smiling Reed Hastings looking confident and speaking smoothly.

The stock is down 4% in after hours trading.

The slide began immediately after Netflix released its earnings numbers, as investors realized that Netflix missed on estimates for streaming subscribers. It had projected something in the range of 900,000 additional new subscribers, and fell short with 630,000.

That brings the total number of streaming subscribers up to 29.81 million, very close to the witching number of 30 million at which a lot of Netflix bears say its subscriber base will dry up. Next quarter should be especially interesting for them.

Meanwhile, Netflix is still spending money on growth that is slow to materialize.

"We're using ....all our domestic revenue to expand internationally," Hastings said on the webcast, acknowledging that it's a risky move in one breath, and saying that it was necessary for the company in the next.

The international market, however, isn't producing for Netflix. There, it saw a $66 million loss, and the company expects to take a $78 million loss in the market next quarter.

In his letter to investors, Hastings seemed excited about growth in international markets, citing specifically the company's launch in the U.K. and Ireland. On the call, he declined to give specific numbers about any of that.

Additionally, Hastings dodged a question from Boorstin about domestic subscriber churns saying “I don’t even look at subscriber churn. What I really focus on is overall growth, which is really net additions.”

This is all wrapped up in what Wall Street bears bring up time and time again — Netflix's cash flow issues. Bottom line: Netflix is still figuring out how to factor in the production of its expensive original series'. So far, it's amortizing those costs.

In terms of streaming content, for example, Netflix amortized $510 million this quarter. It also spent $593 million on new streaming content.

Netflix reported a non-GAAP cash flow of $13 million finally coming back in black after a series of quarters with negative cash flow.

Ultimately, however, the non-GAAP calculation is done by simply subtracting acquisitions Netflix's its DVD library and purchases of equipment from net cash used in the operating the company and other assets.

What it doesn't factor in is whether or not Netflix is simply wrong to amortize the costs of it's programming.

The shorts are thinking that the subscriber base won't allow the company to keep up its current spending, and that if it were healthy, the costs that the company is capitalizing would be paid off quarter after quarter in full.

The bears might also harp on the fact that Hastings neglected to discuss any off balance sheet liabilities during this webcast — they totaled $3.3 billion at the end of March.

Not necessarily the kind of money that just disappears.