After a number of controversies, including the announcement of a partnership with former President Barack Obama, Netflix is suddenly facing a problem it didn’t expect: fewer subscribers.
The streaming service announced today that it added 5 million new subscribers over the last three months. That sounds like a great thing, but experts predicted Netflix would actually get at least a million more subscribers than that. For a company that always exceeds expectations, the news caused concern on Wall Street.
After the news broke, Netflix stocked dropped 14% in after-hours trading, it was a drop amounting to billions in losses in market capitalization.
While the exact cause of the lower subscriber numbers cannot be fully determined, it comes after a number of controversies that have caused tens of thousands of subscribers to quit, and likely discouraged new sign-ups.
Earlier this year, Netflix announced a partnership with Obama to produce new content for the company. That came as comedienne Michelle Wolf, who has a new show on Netflix, personally trashed White House Press Secretary Sarah Sanders at the Washington Press Correspondent’s Dinner and refused to apologize. Her show recently featured a “Salute to Abortion,” celebrating it with a parade-like performance.
Last year, Netflix premiered a new show, “Dear White People,” which targeted white people as the cause of America’s racial strife.
The controversies caused many subscribers to cancel in protest, and potential new subscribers may have stayed away in protest as well.
Netflix Inc’s subscriber growth fell short of Wall Street expectations on Monday, sending shares of the normally high-flying stock down 14 percent on fears that the company’s rapid expansion is slowing.
The streaming video pioneer added 5.2 million customers from April through June, 1 million fewer than forecasts from Thomson Reuters I/B/E/S, as it added new programming including “Lost in Space” and new episodes of Marvel’s “Jessica Jones” and “13 Reasons Why.”
“We had a strong but not stellar Q2,” Netflix said in a quarterly letter to shareholders.
Netflix said it had “over-forecasted” quarterly fluctuations in the pace of new customers. The company noted that it had underestimated subscribers for seven of the past 10 quarters.
Before the earnings report, Netflix shares had gained 109 percent, making it the second-strongest performer on the S&P 500 index. In after-hours trading on Monday, Netflix shares sunk 14 percent to $343.60, eroding $24.2 billion in market capitalization and down from an earlier close of $400.48.
The company itself downplayed the drop, insisting that its “fundamentals have never been stronger.”
— Hollywood Reporter (@THR) July 16, 2018
“Investors are devastated by Netflix’s Q2 projection that went down in dramatic flames. Now future projections are suspect and that decimates valuation,” said Eric Schiffer, chief executive officer of private equity firm Patriarch.
Wall Street had been betting that Netflix would deliver outsized growth as demand for online entertainment increases around the globe. The company is spending heavily to hook new customers, budgeting $8 billion for programming and $2 billion for marketing in 2018.
Netflix added 670,000 subscribers in the United States, well below analysts’ estimates of 1.19 million, according to Thomson Reuters I/B/E/S.
It signed up 4.47 million subscribers internationally, while analysts were expecting 4.97 million.
The overly optimistic projections were “pretty broad across multiple markets,” Chief Financial Officer David Wells said on a post-earnings webcast.
Executives voiced confidence about the long-term health of the streaming service. Chief Executive Reed Hastings said median viewing hours were growing, though he did not provide specifics.
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