Netflix fell far short of its own forecasts for new subscribers, raising concerns about the streaming giant just as rivals Disney and Apple are set to swoop into its market.
The company added 2.7m subscribers globally in the three months ending in June — well below its guidance for 5m additions and Wall Street forecasts for 5.1m new users.
Netflix also revealed that it had lost subscribers in the US for the first time since 2011, as customers defected after price rises of as much as 18 per cent earlier this year.
“There was no one thing” to explain the decline, said Reed Hastings, Netflix chief executive, adding that “if investors believe in internet TV . . . our position in the market is very strong”.
Investors showed their disappointment with the results in after-hours trading, sending shares down as much as 12 per cent to below $320.
“Misses in subscriber numbers hurt Netflix shares more than just about any other metric, and this is a significant one,” said Nicholas Hyett, Equity Analyst at Hargreaves Lansdown. “Missing expectations just when competition for viewers is hotting up is doubly worrying and doubly painful.”
In the US, its largest market, Netflix lost 130,000 subscribers in the quarter. The company in January raised prices for all US customers. The price of a standard Netflix subscription now costs $13 a month — a dollar higher than rival Hulu.
California-based Netflix already has a strong grip in its home country, with more than 60m Americans paying for a Netflix subscription. But the latest results “could point to potential saturation in the [US] market,” said Patrice Cucinello, director at Fitch.
Netflix blamed its content slate for the large miss, while adding that its forecasts “strive for accuracy (not conservatism)”.
The company said that it expects the US to return to “more typical growth” in the third quarter, during which two of its biggest original hits, Stranger Things and Orange is the New Black, return with new seasons. Netflix expects to add 800,000 US subscribers in the third quarter.
Netflix has continued to pump billions of dollars into its own shows and films. Analysts expect the company to invest $15bn in content this year. It has justified the splurge with fast subscriber growth: at the end of June, Netflix had 152m subscribers across the globe.
However Netflix’s disappointing quarter comes as the company faces looming competition in the streaming market it pioneered. Disney, Apple, AT&T and Comcast’s NBCUniversal prepare to unveil rival services in the coming months.
The threat of competition and the recent price rises amounted to what JPMorgan analysts called a “wall of worry” around the stock. But its shares had gained more than 35 per cent this year, before peaking at $385 a share in May, compared to a 20 per cent rise for the benchmark S&P 500.
As the streaming battle heats up, some fan favourites will be pulled from Netflix as media companies claw their content away from the service. Last month NBCUniversal announced it had taken the rights back for The Office starting in 2021, while WarnerMedia is pulling Friends from Netflix next year.
Netflix on Wednesday brushed off the threat, instead arguing that the losses of these shows would “free up budget for more original content”.
Netflix reported second-quarter adjusted earnings of 60 cents a share, on revenue of $4.9bn. Analysts were looking for 56 cents a share on sales of $4.9bn.
The company uses debt to help finance its heavy spending on content. Long-term debt stood at $12.6bn at the end of June, up from $10.3bn in March. Netflix has forecast a free cash burn of $3bn in 2019, although it expects an improvement after that. “In the meantime, our plan is still to use high yield debt to fund our content investments,” the company said.