Investors Nail Netflix After Streaming Falls Short

Earnings Reuters

Netflix Inc (NFLX) said it added fewer video streaming subscribers than expected from April through June as customers canceled the service ahead of a price increase, and the company's shares fell 16 percent.

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The dominant subscription video service on Monday also forecast slower-than-expected growth in U.S. and international subscribers this quarter.

"We are growing, but not as fast as we would like or have been," the company said in its quarterly letter to shareholders.

Netflix, which distributes popular original shows such as "Orange is the New Black" and "House of Cards" along with movies and TV shows from major Hollywood studios, signed up 1.7 million new customers in the quarter that ended in June. It had projected 2.5 million.

The company said it expects to add 300,000 subscribers in the United States in the current quarter and 2 million in markets outside the United States.

"Our global membership forecast for Q3 includes an impact from the spectacle of the Olympics," the letter said.

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Analysts on average expect the company to add 774,000 subscribers in the United States and 2.85 million in the international markets in the third quarter, according to research firm FactSet StreetAccount.

Shares of the company were down at $84.40 in after market trade from a close of $98.81.

Faced with slowing growth in the United States, Netflix has launched in almost every country in the world. It now faces the task of adapting the service to different markets and cultures as competitors also rush in.

Netflix, in the investor letter, said it continues to explore options for starting a service in China but added: "Unfortunately, this year the regulatory climate in China for our service has become more challenging," noting that officials in the country had shut down a Walt Disney Co <DIS.N> streaming service and an Apple Inc <AAPL.O> movie offering.

The company, started in 1997 as a DVD-by-rental firm, is also increasing its spending on movie and TV content and is signing up more streaming deals.

Most recently, Netflix struck a deal with cable operator Comcast Corp <CMCSA.O> that would allow users to access its service on Comcast's X1 set-top box later this year.

The company said on Monday it added 1.52 million subscribers in its international markets in the second quarter, compared with the average analyst estimate of 2.1 million.

Netflix added 160,000 subscribers in the United States in the quarter, compared with the estimate of 532,000, according to research firm FactSet StreetAccount.

Netflix reported earnings per share of 9 cents, beating the 2 cents per share forecast by analysts polled by Thomson Reuters I/B/E/S. "The earnings upside was from lower spending on technology and marketing," said Wedbush Securities analyst Michael Pachter, who has an "underperform" rating on the stock.

 

(Reporting by Rishika Sadam in Bengaluru; Editing by Saumyadeb Chakrabarty and Bernard Orr)