Netflix shares plunge 15% as subscribers give streaming service the cold shoulder

Meanwhile, in the US, Netflix added just 160,000 members from April to June, it’s lowest quarterly gain in its five years operating as an SVoD service.

Its initial prediction was off the back of expecting to gain an additional 500,000 subscribers in the United States and two million internationally, however this quarter it reported gaining 160,000 new members in the United States and 1.52 million members internationally.

“Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to ungrandfather longer tenured members and remained elevated through the quarter”, the company said.

A majority of US subscribers remain under a lower subscription rate, but will be see their monthly rates raised $1 or $2 later this year. However, the 1.7 million was disappointing for the company, after it had forecasted 2.5 million net new subscribers for the quarter, a gap the company attributed to more competition and consumer concern over monthly fee increases.

The stock of Netflix plummeted by 15 percent during after-hours trading after the earnings release.

“Subscriber growth was bad”, said Michael Pachter, media industry analyst with Wedbush Securities.

For its third quarter, Netflix estimates it will earn 5 cents a share on $2.16 billion in revenue, while industry analysts forecast a profit of 7 cents a share on revenue of $2.26 billion.

For the current quarter, the company predicted it will add 300,000 USA subscribers and 2 million in markets outside the United States. On top of that, Netflix’s net income was $41 million instead of the $47 million that had been forecast. Global net additions in Q2 came to 1.5 million compared to the 2 million forecast.

Netflix’s share price was down more than 12% after the market closed, following its earnings announcement. This equals earnings per share of $0.09 compared to $0.06 a year ago. “But it’s a necessary phase we have to get through”.

It remains shut out of China due to what it called a “more challenging” regulatory environment.

In its letter to investors, Netflix blamed the weak subscriber growth on churn, meaning older customers exiting.

Pachter holds an “underperform” rating on the stock.