Netflix Shares Sink After Subscriber Growth Sharply Slows During Second Quarter
Netflix shares plunged more than 10 percent in late trading after the streaming giant reported a rare slowdown in subscriber growth.
The Los Gatos, California-based company on Wednesday said it added 2.7 million subscribers in the quarter ended in June, reads a new report from MarketWatch. The company behind popular shows like “Orange Is the New Black” and “Stranger Things” gained 5.5 million subscribers during the same time last year.
In fact, the streaming giant lost around 130,000 subscribers in the United States, where it has more market penetration. The company, which now has just over 151 million total paid members, had projected additions of 5 million during the period and Wall Street, per FactSet, was expecting 5.1 million new subscribers.
In a letter to shareholders, Netflix CEO Reed Hastings conceded that subscribers were not exactly flocking to see what it had to offer in the last quarter. “We think Q2’s content slate drove less growth in paid net adds than we anticipated,” he wrote.
Hastings also said price hikes were likely a factor for the lower-than-expected numbers, which were slightly worse in regions where prices rose. “We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2,” he wrote.
Netflix, however, is estimating higher third-quarter subscriber growth in light of new popular content additions, including the third season of “Stranger Things,” which was released in early July, as well as new seasons of “The Crown” and “Orange Is the New Black.”
Things are going to get much tougher for Netflix over the next year, as competitive streaming services from Disney, WarnerMedia, and Apple roll out — and these competitors pull back some of the popular titles they currently license to Netflix, like Friends and the Marvel movies, which they want to run on their own services.
“We believe the next three quarters are likely to be pivotal for the next phase of the Netflix story,” Kannan Venkateshwar of Barclays wrote in a research note asserting his “overweight” rating. “Another bad quarter will probably make it tough to make a pricing power argument but if the company is able to add more subs this year than last year and into Q1 ’20, there would be no credible bear case left in the story, in our view.”