The dominant subscription video service on Monday also forecast slower-than-expected growth in US and worldwide subscribers this quarter.
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“The shares are down because their domestic subscriber growth slowed to a crawl”, Wedbush Securities analyst Michael Pachter said. “It’s suggesting that they were caught by surprise”.
Netflix released its Q2 2016 earnings yesterday and one of the biggest takeaways from the report was how many subscribers the company has lost – and how few new subscribers have signed up – following the streaming service’s decision to increase subscription prices.
But that was well below Netflix’s own forecast of 2.5 million additions and lower than many analyst forecasts.
Back in 2014, Netflix raises prices for new members on its standard monthly plan, but existing members had their prices locked in for another two years, after which they would be subjected to the going rate. Netflix has been raising rates lately, and older customers had always been “grandfathered” in to their lower rates, but the expiration of that grace period may be why some subscribers are leaving.
In its statement to shareholders, Netflix says that although gross additions were on target, churn increased slightly and unexpectedly. “With our large subscriber base, slight variances in retention versus forecast can result in significant swings in net adds, particularly in a seasonally small net add quarter like (the second quarter)”, he said. But the latest quarter is the weakest as for the June quarter company was expecting an increase of 2.5 million subscribers and ending the quarter with 83.18 million subscribers but it missed its expectations and added only added 1.68 million streaming subscribers.
“Whatever the price is for something, people don’t like it to go up”, Chief Executive Reed Hastings said on a videoconference call with analysts.
The streaming service, best known for shows such as Orange is the New Black, House of Cards and the Unbreakable Kimmy Schmidt, is now available in nearly every country. “But it’s a necessary phase we have to get through”. “We apologize for the volatility; I know it’s not easy on everyone”, he said.
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Netflix added just 160,000 United States subscribers from April through June. Netflix reported revenues of $1.96bn for the second quarter, up from $1.4bn a year ago.
