Netflix shares plunge as streaming company sees 'hiccup' in subscriber growth

Posted July 18, 2018

According to Netflix they added 670,000 new subscribers in the United States but miss the expected 1.2 million subscribers. "This Q2, we over-forecasted global net additions... as acquisition growth was slightly lower than we projected".

But subscriber growth is what Wall Street cares most about.

"The quarter is a reminder that Netflix's cadence of net adds is not linear, but lumpy in nature", said Justin Patterson, an analyst with Raymond James and Associates in San Francisco, while pointing to the absence of a new hit series as a driver. In after-hours trading on Monday, Netflix shares sunk 14 percent to $343.60, down from an earlier close of $400.48.

Netflix reported Q2 revenue of $3.91 billion, up 40% year over year, and earnings per share of 85 cents (versus 15 cents in the year-ago quarter).

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It signed up 4.47 million subscribers internationally, while analysts were expecting 4.97 million.

Netflix said it made a profit of $384m on revenue of $3.9 billion in the recent quarter, compared to net income of $66m on $2.8 billion in revenue the same time past year.

Netflix still managed to beat earnings expectations for the three-month period ended June 30.

Netflix said operating margins would be narrower than previously expected because of the rapid strengthening of the US dollar, which appreciated by more than 5 percent against major trading partners' currencies in the second quarter.

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In a letter to shareholders, Netflix called its second-quarter performance "strong but not stellar".

Analyst Daniel Ives at GB Insights was quoted by The Guardian as describing the subscriber shortfall as a "near-term gut punch" to the Netflix bull thesis. For the first time, Netflix generated more revenue outside the U.S.: worldwide revenue totaled $1.92 billion and U.S. revenue was $1.89 billion for Q2. The company garnered 112 Emmy Awards nominations last week, more than any other television network.

Riding on the success of its original shows such as "13 Reasons Why", "House of Cards" and "Orange is the New Black", Netflix had beaten subscriber growth expectations in seven out of last 10 quarters.

Netflix is expected to face increasing competition in the next year or two. The world's biggest tech company, Apple, also plans to launch a streaming service that would compete with Netflix. "Our strategy is to simply keep improving, as we've been doing every year", the company said.

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