Netflix subscriber slip hints at 'lumpy' road ahead

Netflix shares plunge in after-hours trade after forecast miss

After five straight quarters of meeting or exceeding analyst expectations for subscriber growth, Netflix finally fell short, disappointing Wall Street.

The streaming video pioneer added 5.2 million customers from April through June, 1 million fewer than forecasts from Thomson Reuters I/B/E/S, as it added new programming including "Lost in Space" and new episodes of Marvel's "Jessica Jones" and "13 Reasons Why".

U.S. net adds of 0.7m (vs. guidance of 1.2m) were down vs. last year's Q2-record 1.1m, but consistent with previous Q2 performance (0.5m in Q2'12, 0.6m in Q2'13, 0.6m in Q2'14, 0.9m in Q2'15, and 0.2m in Q2'16).

Along the way, Wall Street may have focused more on the allure of the Netflix story, rather than the company's fundamentals, said Rob Arnott, head of fund advisory firm Research Affiliates.

Netflix had an average of 124.4 million paying subscribers in the quarter, up from 118.9 million in the first quarter but below its guidance of 125 million. This sent Netflix shares tumbling 12.6% (at time of this posting) in after-hours trading. Revenue came in at $3.9bn, up from last year's $2.8bn, while net income for the quarter was $384m, and increase from $66m the year prior. The company didn't add as many new subscribers as analysts expected, something that's being blamed on a dearth of new content during the second quarter.




In a letter to shareholders, Netflix acknowledged the miss: "We had a strong but not stellar Q2", the statement said. Its total base of 57 million subscribers in the USA dwarfs Hulu's 20 million users and HBO's 5 million.

However, GBH Insights saw the Netflix subscriber forecast miss as a "speed bump", rather than start a downward trend, reasoning that the "content arms race continues to be a major tailwind" for the company.

Bringing in more subscribers and money is vital for Netflix because it expects to keep spending more on exclusive TV shows and movies to try to stand out from rivals. For the first time, Netflix generated more revenue outside the U.S.: global revenue totaled $1.92 billion and U.S. revenue was $1.89 billion for Q2. However, the company took the opportunity to brag about overtaking HBO in the Emmy nomination race this year, breaking the latter's 17-year run.

At the same time, Netflix faces growing competition. The world's biggest tech company, Apple, also plans to launch a streaming service that would compete with Netflix.

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