Netflix subscriber growth slows, panicking Wall Street

Netflix subscriber growth slows, panicking Wall Street

Darren Sullivan
July 18, 2018

"After four consecutive quarters of beating its own guidance, and analysts' expectations on key metrics such as revenues, profits, and subscriber gains, Netflix disappointed with a weak Q2", said eMarketer principal analyst Paul Verna.

USA 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).

Netflix, which is up 108% this year, reported new 5.15 million subscribers, whereas it had projected 6.2 million and Wall Street anticipated 6.34 million, according to estimates.

"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, eroding $24.2 billion in market capitalization and down from an earlier close of $400.48.

Looking ahead to the third quarter, the company is calling for $0.68 in EPS on $3.99 billion in revenue. The company added 700,000 domestic subscribers during Q2, along with 4.5 million overseas, missing company and analyst estimates on both fronts.

"I think Netflix is approaching a ceiling of subscriber growth, especially here in the U.S. They're going to have to do something bold and different".

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Shares of Netflix posted their biggest loss in two years Tuesday after the company failed to meet expectations for both user growth and revenue in the second quarter. Coming off its best back-to-back quarters for total subscriber growth in its history, Netflix fell short of subscriber estimates for the first time since Q1 2017.

Netflix has 130 million subscribers globally. 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 Silicon Valley-based company noted that it is beginning to "lead artistically" in some categories with its original content, earning enough Emmy nominations this year to break a 17-year top-spot streak by HBO. Disney is selling an internet version of its sports network ESPN and plans to introduce a general entertainment video service next year.

Netflix cited an array of competitors, starting with YouTube.

"Our strategy is to simply keep improving", Netflix said.