Second quarter Netflix subscription numbers disappoint

Jul 18, 2018, 00:25
Second quarter Netflix subscription numbers disappoint

Deutsche Bank downgraded Netflix to Hold from Buy, saying that the subscriber number miss was not cause for alarm, but was a reason to reconsider the stock's soaring valuation.

Netflix shares sank about 13 percent after hours when the streaming service reported subscriber numbers that were lower than expected.

While the misses seem minuscule for a company with more than 125 million global subscribers, they could validate investors' fears of a company in slowdown mode for the first time in years. If the stock plunges on the same trajectory during Tuesday's regular trading session, it will be the steepest drop in almost four years.

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

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"We continue to ramp up our production of non-English originals", Netflix said in the letter. Its total base of 57 million subscribers in the US dwarfs Hulu's 20 million users and HBO's 5 million. This time, for Netflix, it was a negative - membership growth seems to have stalled.

The streaming service that has ventured in recent years into original productions, such as The Crown, House of Cards and Stranger Things, reported a profit of $384.3 million, or 85 cents a share, up from 15 cents a share the previous year.

Netflix said in a letter to shareholders that it had overestimated the rate of new shows being added to the platform over the quarter, but remained confident that this would not affect its long-term growth.

Total streaming revenue for Q2 18 is US$3,814 million, up from US$2,671 million during the same period a year ago.

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Total revenue for the period was $3.91bn (£2.9bn), at a yearly growth of 40.3 per cent. Analysts had expected revenue of $3.94bn. Ives expects Netflix to pour another $10 billion into its video mix next year. This is isn't entirely surprising given rising competition in the video streaming market, where Amazon, Hulu, HBO and others are gaining share of subscription video dollars at Netflix's expense.

The company will spend as much as $8bn on programming this year.

In the letter to shareholders, Netflix said it expected more competition from worldwide players including ProSiebenSat 1 Media in Germany and on-demand service Salto in France.

Disney, which is seeking to purchase 21st Century Fox's entertainment assets in the U.S., is planning to launch its own streaming service.

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