Netflix, which has a strong foothold in Australia and New Zealand, suffered a 15 per cent drop in its shares in the United States after the disappointing second-quarter numbers were released.
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Even though Netflix had attempted to lower expectations for growth during the April-to-June period by forecasting the addition of 2.5 million new subscribers – 500,000 USA and 2 million global subscribers – many Wall Street analysts had looked for higher numbers.
Netflix had expected to land 500,000 net new subscribers in the US, along with two million new worldwide accounts.
Netflix said growth was hurt, especially in the USA, after it raised rates on many long-time subscribers who had been “grandfathered” when it hiked most prices.
“Disrupting a big market can be bumpy”, Netflix said on Monday.
Netflix, which has been phasing in price rises for existing customers by $1.00 or $2.00 per month, said on Monday that cancellations “ticked up slightly and unexpectedly” in early April as it rolled out a so-called “un-grandfathering” strategy. In the second quarter, Netflix began “un-grandfathering” longtime subscribers and putting them on the tiered plan, too – leading to a 4% increase in revenue per user over the previous quarter, but also a lot of churn as irked customers cancelled.
Net income was $41 million for the period, compared to $26 million a year ago. Netflix had maintained that price level for current subscribers to its standard HD streaming for two years, while charging new subscribers $9.99.
Netflix’s share price was down more than 12% after the market closed, following its earnings announcement. During the same period past year, the business earned $0.06 earnings per share. Sands Capital Management LLC purchased a new stake in Netflix during the fourth quarter worth $852,347,000.
“With new members, we haven’t seen any effect”, Hastings said. Delivering 1.7 million new subscribers when you were hoping for 2.5 million sounds awful, but let’s put these figures in a different perspective. Revenues were still up 28 percent year-on-year to United States dollars 2.11 billion, just under its forecast of USD 2.14 billion.
Not only is growth costing the company a lot of money at this time, subscriber growth is slowing.
“We don’t believe market saturation is a key factor in the USA given that we experienced similar performance over the same period in multiple countries with differing levels of Netflix market penetration”.
It remains shut out of China due to what it called a “more challenging” regulatory environment.
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Revenue also missed expectations, at $1.96bn for the second quarter – lower than expectations of $2.1bn.
