Netflix shares plunged more than 15% in after hours trading in the US this morning after the streaming video giant revealed a sharp slowdown in new subscriber numbers in the three months to June 30.
Revenue and earnings for the quarter grew strongly, but the market is focused on just one metric from the company – subscriber growth – both actual and forecast and this time, Netflix failed to meet expectations.
In fact the actual number of new subscriptions fell far short of the streaming subscriptions it had projected.
Netflix said in its filing that it added 160,000 domestic customers, well under the 500,000 it told investors to expect three months ago.
It now expects to add 300,000 in the current quarter, less than half of what Wall Street anticipated.
Internationally Netflix added 1.52 million, short of the 2 million it had previously forecast. Netflix expects to add 2 million in the current quarter, also well under the 2.5 million expected by the market.
But at the end of June the company had more than 83 million subscribers – 47.13 million US domestic streaming customers, and 36.05 million in international markets.
CEO Reed Hastings claimed that gross subscriber numbers were “on target,” but churn “ticked up slightly and unexpectedly” — which he attributes to press coverage of the end of a grandfathering period for a price increase.
“We are growing, but not as fast as we would like or have been,” he says. “Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business.”
Another reason for the price fall was Hastings’ warning that the company’s China ambitions had become “more challenging” .
He said this was due to changes in the regulatory climate there. “Disney’s streaming service, launched in conjunction with Alibaba, was closed down, as was Apple’s movie offering,” he says. “We continue to explore options and, in the meantime, have plenty of work to do in our newly opened markets.”
Still the company’s earnings continue to grow strongly. Netflix said net profit for the quarter jumped 57.7% to just over $US41 million compared to the second quarter of 2015.
Revenue jumped nearly 33% to $US1.97 billions which was less than the $US2.11 billion that the market was looking for
Netflix says it plans to add to its $US2.4 billion of gross debt by raising additional capital in the high yield market by early next year.
