Netflix shares fell sharply in after-hours trading after it fell short of its own and market forecasts for subscriber growth in the three months to September 30 and warned of weaker results for the first six months of 2021.
The shares ended at $US525.30, down 1% in regular trading, but fell well under $US495 in after-hours dealing to be down 6%
That’s a loss of more than $US14 billion in market value and the fall helped drag futures trading for the Dow, Nasdaq, and S&P 500 heading into Asia.
Netflix reported global subscribers of 195.15 million as of September 30, up from 192.95 million on June 30.
The company had predicted it would add 2.5 million new subscribers, so the growth of 2.2 million was short and the smallest of any quarter in years after a spectacular surge earlier this year amid COVID-19 that saw more than 25 million people added in the first six months (and why the first two quarters of 2021 will be weak in comparison).
Revenue of $US6.4 billion met market forecasts and topped the company’s internal guidance by $US100 million which was a small positive. Net profit was $US790 million up sharply from $US665.2 million a year earlier.
In the latest guidance published along with its quarterly letter to shareholders on Tuesday (US time), Netflix said it was looking for 6 million new subscribers in the December quarter, which some analysts immediately questioned.
In terms of the third-quarter slowdown, Netflix was upfront:
“We think this is primarily due to our record first-half results and the pull-forward effect we described in our April and July letters,” the latest management letter said.
It noted that In the first nine months of 2020, Netflix noted, it added 28.1 million subscribers, more than the 27.8 million for all of 2019.
Netflix also warned investors that the first two quarters of 2021 are likely to be down compared with the meteoric gains of the same periods in 2020.
“We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long-run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,” the letter emphasized.
The company continues to have extremely low subscriber churn, reportedly less than 3%. The letter didn’t offer a specific number for it but said “retention remains healthy and engagement per member household was up solidly” in the quarter.