Netflix bested earnings expectations, but its subscriber growth underwhelmed
Netflix is taking a beating on Wall Street, where its share price is down more than 15 percent in after-hours trading due to its third-quarter earnings report.
Netflix registered earnings per share of $0.13 and revenue of $905 million, both better than analysts had predicted ($0.05 and $904.89 million). The revenue is also a 10 percent improvement over the same quarter a year ago ($822 million).
However, the company's earnings per share represents a huge drop from a year ago, when it was $1.16, marking the second straight quarter with razor-thin profit margins.
Although Netflix surpassed 25 million domestic streaming customers for the first time, those domestic subscriber numbers still trouble investors. Netflix added 1.16 million net streaming subscribers, lifting its total number to 25.1 million. That number came in at the low end of guidance, which estimated an additional 1 to 1.8 million subscribers.
The company once said it would add 7 million domestic customers this year, but had only added 2.1 million entering the quarter. This month's haul brings the total to 3.26 million, meaning Netflix will need a huge holiday push to meet its target.
The company still boasts 8.61 million DVD customers, a number that continues to fall as Netflix transitions consumers to streaming — which is far cheaper for the company.
Overseas, Netflix added 690,000 subscribers, bringing its total to 4.31 million.
Though Netflix continues to add subscribers and turn a profit, investors fear slow growth there will be overwhelmed by rising costs from international expansion and higher licensing fees.
In his letter to shareholders, Netflix CEO Reed Hastings noted that the company's "long-term domestic market opportunity remains 2-3x that of linear HBO." The key word there is linear.
Hastings also devoted a huge section of the note to competition, acknowledging a key factor in Netflix's recent problems on Wall Street. With Hulu, Amazon and HBO all making major digital content plays, Netflix is no longer the only player in streaming film or television.
Amazon is investing in its streaming platform, Amazon Prime, and in original content through its Amazon Studios.
Meanwhile, HBO will launch an Internet-only service in the Nordics. In the U.S., HBO requires that you subscribe to the premium cable channel in order to stream shows using HBO Go. Netflix believes the new service in the Nordics is a test balloon and a domestic web-only streaming service is in the offing.
Hastings is "looking forward" to competition. For now.