Netflix Inc shares on Thursday dived after the leading streaming entertainment service reported relatively flat quarterly profits despite rising subscriber numbers.
Netflix reported a profit of US$720 million on revenue of US$6.1 billion last quarter, compared with US$709 million profit on US$5.8 billion in revenue during the first three months of the year.
Wall Street analysts had expected stronger profit, especially as people who are hunkered down at home due to the COVID-19 pandemic turn to the service for entertainment.
Ranks of paid memberships grew by 10.1 million to about 193 million, but Netflix warned growth could cool since sheltering-in-place likely meant people rushed to join in the early months of the pandemic as lockdowns began, instead of spreading out over the year.
Shares quickly dove more than 10 percent in after-market trades that followed release of the earnings figures, but regained a bit of the loss.
Wedbush Securities Inc analyst Daniel Ives described the share stumble as a “near-term speed bump” due to overly exuberant expectations.
“Streaming growth is seeing a bonanza in this COVID environment,” Ives said.
Pandemic-related restrictions have sped up a lifestyle shift from traditional television to streaming shows online, eMarketer Inc analyst Eric Haggstrom said.
“Looking forward, even as lockdowns are relaxed and new competitors begin to scale their services, Netflix will extend its lead as the first stop for entertainment,” Haggstrom said.
Netflix said in a letter to shareholders that while its slate of original shows for this year is on track, it is focused on safely getting production back up and running.
“As the world slowly reopens, our main business priority is to restart our productions safely and in a manner consistent with local health and safety standards to ensure that our members can enjoy a diverse range of high quality new content,” executives said in the letter.
“There is no one-size-fits-all approach, and we’re adapting to local circumstances. Today, we’re slowly resuming productions in many parts of the world,” they said.
Netflix is facing increased competition from tech giants such as Apple Inc and Amazon.com Inc, along with entertainment titans including Walt Disney Co, NBCUniversal Media LLC and AT&T Inc’s WarnerMedia.
Social media is also a threat.
“TikTok’s growth is astounding, showing the fluidity of Internet entertainment,” Netflix said in the letter.
“Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers,” it said.
Greg Peters, the company’s new chief operating officer as well as chief product officer, on Thursday said in a video interview that he foresees future growth coming from outside the US.
“Think of more and more employees outside the United States, more productions, more operations happening outside the US and hopefully many, many more members outside the US,” he said.
Netflix has invested billions of dollars in original content, as has streaming television rival Amazon, to win and keep subscribers in the increasingly competitive online entertainment market.
The service has found success with series such as Umbrella Academy as well as game shows such as Too Hot To Handle, along with its own films and reality television.
“We want to have so many hits that you just come to Netflix and go hit-to-hit and never have to think of those other services,” chief executive Reed Hastings said.
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