Netflix Falls Short of Q2 Subscriber Expectations Worldwide, Stock Dives

18 July, 2018, 00:27 | Author: Kristopher Anderson
  • Culture       Netflix isn’t the world’s most valuable media company any more
       
       	        Lucas Shaw         18 July 2018

However, GBH Insights saw the Netflix subscriber forecast miss as a "speed bump", rather than start a downward trend, reasoning that the "content arms race continues to be a major tailwind" for the company.

Despite the weak quarter, and a lowered outlook for the third quarter, Emarketer expects Netflix to remain the clear leader among video streaming services in the US. It marked the first time in a more than a year that Netflix hadn't exceeded its subscriber growth projections. The company's shares fell by 13.1 per cent to $348.15 in after-hours trading. The shares had more than doubled before the sell-off.

"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. Analysts at Bloomberg expected the company would add about five million overseas customers during the quarter, but only 4.47 million were added.

Still, Netflix ended Q2 with 130.1 million global subs, up 25% year over year, with 56 million in the US and 72.8 million elsewhere.

Analysts had been modeling $3.94 billion in revenue and EPS of 79 cents. While it's one thing for Netflix to fall short of Wall Street expectations, it's another matter entirely for Netflix to fall short of its own internal projections.

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"I think Netflix is approaching a ceiling of subscriber growth, especially here in the U.S. They're going to have to do something bold and different". Netflix's marketing budget increased 92 percent since the same time a year ago, hitting $526 million for the quarter. Total revenue rose 40.2 percent to $3.91 billion.

Netflix has been investing a significant amount of cash in content creation and is expected to spend up to $8 billion this year on original programming.

Netflix has already been battling challenges from Amazon, Google's YouTube and Hulu in the video streaming market, and it is likely to face even stiffer competition as other formidable rivals try to muscle into the market.

Going forward, "We anticipate more competition from the combined AT&T/WarnerMedia, from the combined Fox/Disney or Fox/Comcast as well as from worldwide players like Germany's ProSieben and Salto in France", the company said in the investor letter.

Netflix said Monday that it expects more competition, but dismissed any potential negative impact on its business.

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