Netflix bounced back from an initial double-digit drop and closed down 5% in trading Tuesday, one day after the streaming giant reported that it had added one million fewer subscribers than expected in the second quarter.
Shares plunged in after-hours trading Monday after Netflix said it had added 670,000 U.S. net subscribers, far below an expected 1.19 million domestic additions, and 4.47 million international subscribers, lower than an expected 4.97 million. The growth miss stoked concerns on Wall Street that the streaming giant is nearing a saturation point among consumers.
“After handily blowing away Street expectations on subs the last few years, this is a clear speed bump for Netflix as the international miss was most concerning given this is the linchpin to the core growth thesis for the coming years,” GBH Insights technology research analyst Daniel Ives said in a note.
The company’s stock closed at $379.48 on Tuesday, down from a closing price of $400.48 on Monday. Netflix had entered the week with share gains of more than 100% so far this year.
Quarterly results weighed on Netflix’s stock price, but did not translate into major stock downgrades. Just one firm downgraded Netflix after the earnings miss, while two others upgraded the stock and three raised long-term price targets, Reuters reported.
Netflix downplayed the shortfall in a letter to shareholders on Monday afternoon, arguing that the miss was attributable to overly optimistic internal forecasting rather than any weakness in the company’s outlook. Company CEO Reed Hastings said Netflix’s “fundamentals have never been stronger” entering the third quarter.
The disappointing subscriber results came just days after Netflix earned 112 Emmy nominations for its original content, more than any other network.
"While subscriber weakness is obviously an issue, the company's inability to explain it satisfactorily could weigh on the stock over the coming quarter," Barclays analysts said in a note.