In addition to disappointing numbers for Q2, Netflix expects to add 300,000 US subscribers and 2 million overseas in Q3. Instead, it blamed the lackluster results on the number of subscribers who cancelled their service amid price increases.
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Netflix saw net additions of 1.52 million internationally, below the 2 million guidance, and it expects to add 2 million subscribers next quarter, compared to expectations of 2.7 million to 2.85 million.
“Churn ticked up slightly and unexpectedly”, said CEO Reed Hastings in a note to shareholders. Margins in the USA are expected to rise 0.8% in the third quarter and internationally the company expects the second quarter’s net loss of $69 million to widen to $95 million.
Netflix grew by 1.7 million members in the second quarter, well below the 3.3 million additions in the same period a year ago.
Shares in Netflix plunged 13% to $85.90 in after-hours trading in NY after the company announced lacklustre subscriber growth because of higher prices for existing users.
“The shares are down because their domestic subscriber growth slowed to a crawl … and domestic profits fuel their worldwide losses”, said Wedbush Securities analyst Michael Pachter.
Analysts surveyed by FactSet StreetAccount are expecting the company to add 774,000 new customers in the U.S and 2.85 million in the markets outside the United States. However, subscribers at the time of the price increase were grandfathered in at $7.99 a month for two years.
In after-hours trading, Netflix shares plunged more than 16 per cent to $82.59 U.S. by 4:30 p.m. ET.
Whether you want to call it “ungrandfathering” or just a staggered price hike, Netflix downplayed the higher prices’ impact on the company’s long-term success.
Netflix revenue also came in short at $1.96 billion against a $2.1 billion forecast. Among the negative price catalysts, the firm lists price increases, market saturation, rising competitors, coupled with an imperfect execution strategy.
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Netflix ended the second quarter with operating income of $70 million and a profit of $41 million, both well above what the company forecasted, on revenue of $1.97 billion. But it’s a rare piece of bad news for the company that’s been dominating movie streaming since well before Netflix and Chill was even a thing.
