Netflix is adding subscribers at a slower pace than envisioned, renewing fears that its growth might sputter as the video streaming service tries to fend off fiercer competition.
The numbers released on Monday mark a rare letdown for a company that has enthralled investors with its ability to consistently top expectations.
However, Netflix missed its target badly in the April-June period, causing its high-flying stock to plummet by about 14 percent to US$345.63 in extended trading on Monday.
Photo: Reuters
The shares had more than doubled before the sell-off. If the stock plunged on the same trajectory during yesterday’s regular trading session, it would be the steepest drop in nearly four years.
In a research note, GBH Insights analyst Daniel Ives called the second-quarter showing “a near-term gut punch” to Netflix.
The company gained 5.1 million subscribers worldwide during the quarter, more than 1 million below the number that management had believed it could.
SLOWER GROWTH
It marked the first time in a more than a year that Netflix had not exceeded its subscriber growth projections.
As of June 30, Netflix had 130 million subscribers, including 57.4 million in the US.
Netflix predicted it would add 5 million subscribers in the current quarter ending September, slightly slower than the pace a year ago.
The spring and summer months mark Netflix’s most sluggish period as more people go on vacation and spend time outside instead of watching video.
Despite Netflix’s second-quarter misfire on subscriber growth, the Los Gatos, California, company reported earnings that beat analysts’ estimates.
Earnings grew 32 percent from last year to US$384 million, or US$0.85 per share. Revenue climbed 6 percent to US$3.9 billion.
STIFF COMPETITION
Bringing in more subscribers and money is vital for Netflix because it expects to keep spending more on exclusive TV shows and movies to try to stand out from rivals.
The company plans to spend as much as US$8 billion on programming this year.
Ives expects Netflix to pour another US$10 billion into its video mix next year.
Netflix has already been battling challenges from Amazon, Google’s YouTube and Hulu in the video streaming market, and it is likely to face even stiffer competition as other formidable rivals try to muscle into the market.
AT&T just bought Time Warner for US$81 billion in a deal that includes HBO — a pay TV and video streaming service that AT&T plans to expand in an attempt to lure more viewers away from Netflix.
Walt Disney is hoping to close on a US$71 billion deal to buy prized entertainment franchises from 21st Century Fox to feed into a video streaming service Disney is to debut next year.
Meanwhile, Apple — the world’s most valuable company — is spending about US$1 billion on original programming for a video service of its own.
“Right now, Netflix is still miles ahead of its closest competitor, but there is going to be a giant bulls-eye on Netflix’s back during the next 18 to 24 months,” Ives said in an interview.
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