Yahoo News Netflix Misses Subscriber And Earnings Forecasts In Q3 Setback
Netflix fell short of its own guidance for earnings per share and subscriber growth in the third quarter,
Global subscribers totaled 195.15 million by September 30, up from 192.95 million as of June 30. The company had predicted it would add 2.5 million new subscribers, so the growth of 2.2 million was well short and the smallest of any quarter in years after a spectacular surge earlier this year amid COVID-19.
Earnings of $1.74 rose from $1.47 in the year-earlier period but they undercut the Wall Street consensus for $2.13 and the company’s outlook of $2.09. At 19% below the bar set by analysts, the miss was the biggest for Netflix since it went public in 2002.
Revenue of $6.4 billion met analysts’ expectations, and exceeded the company’s internal guidance by $100 million.
The company sought to cool off speculation about subscriber gains in its own forecast but several Wall Street analysts had expected a much higher number in the 5 million to 6 million range.
In the latest guidance published along with its quarterly letter to shareholders, the company called for 6 million new subscribers in the fourth quarter, which is slightly below the average view of analysts. In terms of the third-quarter slowdown, it played it pretty straight.
“We think this is primarily due to our record first half results and the pull-forward effect we described in our April and July letters,” the latest letter said. In the first nine months of 2020, Netflix noted, it added 28.1 million subscribers, more than the 27.8 million coming aboard in all of 2019.
Management also warned investors that the first two quarters of 2021 are likely to be down compared with the meteoric gains of the same periods in 2020. “We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,” the letter emphasized.
The company continues to have extremely low subscriber churn, reportedly less than 3%. The letter didn’t offer a specific number for it but said “retention remains healthy and engagement per member household was up solidly” in the quarter.
Competition, of course, has ramped up significantly in subscription streaming, with Apple, Disney, WarnerMedia and NBCUniversal having joined the fray over the past year. In the letter, Netflix said it was “thrilled” to competing with so many rivals and noted Disney’s recent corporate reorg as a sign of how central streaming will be in the years to come. Of course, comparisons are very inexact given that Netflix is a pure-play streamer and its rivals have other businesses to look after, including legacy ones that throw off cash but are in decline.
Programming has been the source of some skepticism about Netflix’s ability to keep its industry-leading streaming machine cranking. In the absence of any high-profile, Stranger Things-like debuts in the quarter, highlights included new seasons of Umbrella Academy and Lucifer as well as broad-audience films The Old Guard and Project Power.
While it continues to shift toward originals, the streaming giant is also an important engine for shows produced elsewhere. Schitt’s Creek, for example, pulled off an Emmy sweep in September in large part because of Netflix providing visibility. Cobra Kai, which began as a YouTube Premium title and is now a Netflix original, had its third season debut in August. Netflix said 50 million member households watched Season 1 of the series during the quarter.
Netflix stock has gained about 60% in 2020 to date, though it has recently moved sideways ahead of the earnings announcement. After closing Tuesday’s trading day at $525.40, down 1%, shares fell another 5% in after-hours trading on the quarterly results.
Executives are likely to field questions during their quarterly earnings interview about recent management changes, with longtime programming executive Cindy Holland departing as well as a shorter-tenured senior exec, Channing Dungey. Holland, the force behind originals like Orange is the New Black, has not yet landed in a new job, while Dungey has just taken over as head of Warner Bros Television.
More from Deadline
Netflix Shares Dip On Subscriber Slowdown, But Wall Street Bulls Still Buy The Story
Netflix's Ted Sarandos Addresses Departures Following Content Restructure
Best of Deadline
Coronavirus: Movies That Have Halted Or Delayed Production Amid Outbreak
Hong Kong Filmart Postponed Due To Coronavirus Fears; Event Moves Two Weeks Before Toronto
Sign up for Deadline's Newsletter. For the latest news, follow us on Facebook, Twitter, and Instagram.
