Netflix Shares Sink 10 Percent in Early Trading After Subscriber Growth Warning

Stock slips in first regular trading after the company predicted a slowdown in momentum

Netflix CEO Reed Hastings at CES 2016

Netflix shares took a beating in the first regular trades of its stock Tuesday morning, after it warned investors Monday that it didn’t expect new member growth to keep rolling in at the same pace, and the company faced stiffer competition from Amazon.

As of 10:15 ET Tuesday morning, Netflix shares were down more than 10 percent to $97.05. Weak outlook Monday had pushed shares down as much as 13 percent in after-hours trading. The stock is still up about 21 percent in the last year.

Despite a strong performance in the first three months of 2016, Netflix predicted that its new U.S. members would barely inch higher this spring, and subscriber sign-ups overseas would actually be weaker than they were a year earlier.

Netflix predicted it would add 2.5 million new streaming customers globally in the current quarter. That would be its weakest growth in three years, even though it was operating  in a fraction of the countries then that it is now.

Barton Crockett, an FBR analyst who covers Netflix, said in a note that the latest results seemed to mark the peak of the company’s subscriber growth, and that the momentum looks likely to slow from here on out. “We find the conclusion hard to escape,” he said.

Before Netflix’s prediction, Amazon broke out its Prime Video streaming service as a standalone monthly subscription for $8.99 a month — a buck cheaper than Netflix. The move broke video off from the annual contract of its full Prime membership, which is best known for free, second-day shipping.

During a live-streamed discussion to discuss the results Monday, Netflix executives characterized the heightened rivalry as simply part of a competitive video market.

“This is all part of the natural evolution from linear TV to Internet TV,” CEO Reed Hastings said. 

Executives also noted Netflix was dealing with a difficult comparison on new members because of its launch in Australia and New Zealand in 2015, which caused a surge in sign-ups thanks to pent-up demand. They pointed out the new guidance on second-quarter member growth matches the outlook it provided for the same period a year earlier.

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