Netflix Shares Plunge as Subscriber Growth Misses Expectations

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July 16, 2018
Updated 4mo ago

By Alisha Haridasani

Netflix shares plunged by more than 12 percent after hours on Monday after the video streaming giant failed to meet expectations for the second quarter.

The company added just 670,000 subscribers in the U.S., about half of its own projection of 1.2 million. Internationally, the company netted 4.47 million users, less than the forecast for 5 million. Revenue, meanwhile, totaled $3.91 billion, also falling short of analyst expectations.

Chris Versace, chief investment officer at Tematica Research, said he wasn't surprised by the stock's reaction.

"Expectations heading in ー stock is up over 100 percent year-to-date ー [it] had to deliver perfection. Did they come close? No they did not," Versace told Cheddar. "Let's remember what we've seen not just this last quarter, but the last couple quarters. Any time a company misses, it is going to see its stock get hit anywhere from 8 to 12 percent."

In a letter to shareholders, Netflix acknowledged the miss: “We had a strong but not stellar Q2," the statement said "We over-forecasted global net additions.”

The company also tempered its third quarter projections, saying it will bring in 5 million subscribers globallyーdown from 5.3 million, the bulk from outside the U.S.

Netflix has been investing a significant amount of cash in content creation and is expected to spend up to $8 billion this year on original programming. It seemed those dollars were paying off, when the platform received 112 Emmy nominations for its own content, breaking HBO’s 17-year streak of dominating the categories.

But Netflix did raise concerns about other players entering the field. “We anticipate more competition from the combined AT&T/Warner Media, from the combined Fox/Disney or Fox/Comcast, as well as from international players.”

“Our strategy is to simply keep improving,” the company stated.

Despite the poor earnings report, Netflix is still the biggest in the industry. Its total base of 57 million subscribers in the U.S. dwarfs Hulu’s 20 million users and HBO’s 5 million.

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