Netflix Misses Big on Q2 Subscriber Growth, Stock Falls 10%

Streaming giant adds 2.7 million new customers — missing analyst estimates by nearly 50%

Netflix Earnings

Shares of Netflix’s stock plunged more than 10% in early after-hours trading on Wednesday, after the streaming heavyweight fell well short of hitting Wall Street’s expectations — as well as its own — when it came to second quarter subscriber growth. Netflix blamed recent subscription price hikes for its underwhelming subscriber figures.

Netflix reported it added 2.7 million new subscribers during Q2, easily missing analyst estimates of 5.2 million new customers. Netflix had projected in April it would add about 5 million new subscribers, with 4.7 million of those coming outside the U.S. Its new customers bring Netflix’s overall subscriber count to 151.6 million.

In its letter to shareholders, Netflix said it missed its subscriber forecast “across all regions, but slightly more so in regions with price increases.” Netflix lost 126,000 subscribers in the U.S. during the quarter.

This was the first quarter to fully reflect Netflix’s most recent price hikes, which the company revealed in January and started to implement in the following months. The price increases, which hit North America and several Latin American countries, bumped its Standard package from $10.99 to $12.99 per month, while its  Premium plan, which includes up to four HD streams, moved from $13.99 a month to $15.99 each month.

Netflix, in its shareholder letter, said “we don’t believe competition was a factor” that contributed to lagging growth, “since there wasn’t a material change in the competitive landscape during Q2.” Rather, Netflix said it thinks Q2 “content slate drove less growth in paid net adds than we anticipated.” The company added its seeing “more typical growth” in the U.S. during the first few weeks of Q3.

The company reported earnings per share of 60 cents, surpassing analyst estimates of 56 cents EPS, and $4.92 billion in revenue — virtually matching analyst estimates of $4.93 billion for the quarter.

Still, the company’s stock price, which is strongly tied to its subscriber performance, fell from $362.44 to $325 per share immediately after the company reported its Q2 results.

Netflix forecasted it would add 7 million new subscribers during the third quarter and report $5.25 billion in revenue.

While its fee increases may have scared some users away, Netflix’s average revenue per user increased 12% in the U.S. and 7% internationally.

Netflix said in its shareholder letter it will be launching a lower-cost, mobile-only streaming option in India during the third quarter. Netflix chief Reed Hastings has previously said he’s aiming for Netflix’s next 100 million subscribers to come from India.

As Netflix has inched towards a saturation point at home, while at the same time, looked to aggressively grow outside the States, some industry experts have said the company should explore an ad-supported subscriber tier. But that doesn’t appear to be coming anytime soon.

“We, like HBO, are advertising free,” the company said in its shareholder letter.  “That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

Heading into Wednesday afternoon, Netflix’s stock had traded between $336 and $381 per share over the past three months.

Notoriously tight-lipped about its streaming data, Netflix has been a bit more forthcoming in recent months. Netflix shared “Murder Mystery,” its most recent Adam Sandler and Jennifer Aniston-led flick, was viewed by nearly 31 million accounts during its debut weekend in June, breaking a company record.  And last week, Netflix said more than 40 million accounts had checked out the latest season of “Stranger Things” — including 18.2 million accounts that had completely finished it — during its first four days, setting another company record.

But at the same time Netflix was lauding its original programming, its competitors made it clear the service’s two most popular shows, “The Office” and “Friends,” wouldn’t be around forever. NBCUniversal confirmed last month that “The Office” will be pulled from Netflix at the start of 2021, and WarnerMedia announced HBO Max, its upcoming streaming service, would exclusively carry “Friends” when it launches next spring.

On Tuesday, Netflix grabbed 117 Emmy nominations, second most to HBO, with “When They See Us” leading the charge with 16 nominations.