Netflix shares plunge as growth in subscriber numbers slows

Carla Harmon
July 17, 2018

The numbers came in just shy of those projections, with the company revealing on Monday that they added 5.15 million new customers - 4.47 million of which came from non-U.S. markets. The 112 Netflix nominations include five best series and best limited series nominations and are spread across 40 different scripted and unscripted series, TV movies, limited series, documentaries, talk shows, comedy specials and series for kids. That's less than the $608 million it spent in the same quarter in 2017, but the cash burn keeps the company on track to blow through as much cash as J.P. Morgan was forecasting they would this year.

The company gained 5.1 million subscribers worldwide during the quarter, more than 1 million below the number that management had believed it could. Ever since Netflix released "House of Cards", the company has credited new seasons of original series with luring new customers.

Netflix is adding subscribers at a slower pace than envisioned, renewing fears that its growth may sputter as the video streaming service tries to fend off fiercer competition. It posted US$3.91 billion, compared with an average estimate of US$3.94 billion.

Profit was a bright spot in the latest quarter, but not by enough to reassure investors.

In a research note, GBH Insights analyst Daniel Ives called the second-quarter showing "a near-term gut punch" to Netflix. Earnings amounted to 85 cents a share, topping the 79-cent estimate of analysts.

Netflix has been paying up big time for its content. Netflix said Monday that it expects content expenses to hit $8 billion this year. Marketing expenses surpassed $500 million in the quarter, almost double the amount spent a year ago. HBO and Disney are evolving to focus on internet entertainment services.

Disney, which is seeking to purchase 21st Century Fox's entertainment assets in the United States, is planning to launch its own streaming service.

"Netflix is in a business that varies by quarter anyway and perhaps the company shouldn't have gotten too enamored with the insane success of the last two quarters, which was invigorating but not sustainable", Forrester analyst James McQuivey said. Apple Inc is pouring money into original programming, signing up A-list names including Oprah Winfrey.

Research Affiliates' Arnott expects the Netflix rout to have a broad impact on indexes.

"There's a distinct risk of a ripple effect", Arnott said.

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