Alarm for Netflix as shares plummet on worse-than-expected subscriber growth

Edward Helmore in New York
The Netflix office in Hollywood. In total, the company said it had added 670,000 streaming customers in the US, barely more than half its anticipated 1.2 million subscribers. Photograph: Lucy Nicholson/Reuters

Netflix, the streaming giant behind hits like The Crown and Stranger Things, missed its own forecasts by more than a million subscribers, sending its shares down sharply.

The company second-quarter results, announced on Monday, spooked investors and suggested the company’s explosive subscriber growth may now be slowing. Netflix shares fell 14% to $346.05 in after-hours trading in New York.

For the second quarter, Netflix reported a profit of $384.3m, or 85 cents a share, up from $65.6m, or 15 cents a share, a year earlier.

The company blamed the surprise subscriber target miss on faulty internal forecasting.

This is not the first time Netflix has experienced problems predicting new subscription numbers. The company has misjudged its forecast three times in the past 10 quarters.

In total, Netflix said it had added 670,000 streaming customers in the US, barely more than half its anticipated 1.2 million subscribers. It also missed its anticipated overseas subscriber estimates by over 500,000.

Analyst Daniel Ives at GB Insights said the results were a “near-term gut punch” to the Netflix bull thesis. After years of blowing Wall Street expectations, Ives added: ‘This is a clear speed bump for Netflix as the international miss was most concerning given this is the linchpin to the core growth thesis for the coming years.”

In a letter to shareholders, Netflix said subscriber growth in the US through the first six months of this year is still ahead of the comparable period last year. But it also warned that subscriber growth in the current third quarter would likely be around 5 million, again below analysts’ expectations of 6.3 million.

With subscription-streaming services now becoming the dominant business model for video content, Netflix is beginning to face competition for content from rivals like Amazon and Apple.

Netflix is expected to invest as much as $12bn on content this year, but could face growing competition in the streaming market. Apple is upping its spending on original content in video, music and publishing to $4.2bn by 2022 from $1bn this year. Amazon is expected to almost double its spending on original content from $4.5bn to $8.3bn.

The boom in video streaming is causing established Hollywood movie studios to rapidly re-order their business models. AT&T is set to acquire Time Warner and both Disney and Comcast are in a bidding war for 21st Century Fox.

While Netflix says its anticipates greater competition, it has also been investing heavily in foreign markets, including India. The company also struck a unique deal with Barack and Michelle Obama to produce shows and documentaries.

But Netflix has not been immune to turbulence, and moved to fire chief communications officer Jonathan Friedland after he used a racial slur in his conversations at work. Netflix chief executive Reed Hastings later blamed his own privilege for leading him to minimize race issues and said Netflix had work to do to improve.

In his shareholders letter, Hastings touted Netflix’s recent Emmys achievement, beating out HBO with 112 nominations. He also praised films like Set It Up and The Kissing Booth, which he said had been viewed by “tens of millions”.