Netflix Misses Subscriber Growth Projections for Second Straight Quarter

Streaming giant’s stock still jumps 5% after its Q3 earnings top Wall Street estimates

Last Updated: October 16, 2019 @ 1:52 PM

For the second straight quarter, Netflix came up short of subscriber growth projections when it reported its Q3 earnings on Wednesday afternoon. Still, investors didn’t seem to mind, with the streaming giant’s stock jumping 5% in early after-hours trading after the company easily topped Wall Street’s earnings estimates.

Netflix added 6.8 million new subscribers during Q3, narrowly missing the 7 million new customers both the company and Wall Street analysts had projected. After losing U.S. subscribers for the first time last quarter, Netflix bounced back during Q3, adding 500,000 domestic customers. Internationally, Netflix added 6.3 million new customers — a 23% year-over-year increase.  Altogether, Netflix now has more than 158 million global subscribers.

Netflix championed the third season of “Stranger Things” in its letter to shareholders on Wednesday, saying it was watched by 64 million accounts in the first month following its July release — setting a show record in the process. (Netflix counts a view after 70% of an episode has been watched.)

The company’s $1.47 earnings per share for Q3 trumped the $1.04 EPS analysts had expected. Revenue of $5.25 billion matched analyst projections and marked a 31% year-over-year increase.

While Netflix’s stock price is usually tethered to whether it exceeds or misses its subscriber numbers, its strong earnings appear to have offset any investor fears, at least at first blush.  Netflix shares increased more than 5% soon after the market closed, surpassing $300 per share for the first time since late August.

Netflix, in its letter to shareholders on Wednesday, downplayed the threat it faces from new streaming competitors. The upcoming launch of Disney+, Apple TV+, HBO Max and Peacock will be “noisy,” Netflix said, and potentially impact its growth in the short term; in the long-run, though, the company said it’s poised to continue leading the streaming market.

“While the new competitors have some great titles (especially catalog titles),” the company added, “none have the variety, diversity and quality of new original programming that we are producing around the world.”

Wall Street hasn’t been kind to Netflix since July, when it reported underwhelming Q2 subscriber growth. Netflix blamed its poor performance, in part, on price hikes that went into effect earlier this year. The company’s stock, after hitting $381 per share before its Q2 earnings were released, had dropped 25% heading into Wednesday.

Perhaps just as concerning for investors has been the looming arrivals of two deep-pocketed competitors in Disney+ and Apple TV+ next month. Disney+, some analysts believe, is poised to lap the Mouse House’s own projections for subscriber growth, with UBS expecting it to reach more than 50 million U.S. customers by the end of 2024.

Netflix executives, in their comments following the company’s Q2 report, believed it would rebound during Q3, thanks to the return of several prominent original shows, including “Stranger Things” and “13 Reasons Why.” In September, Netflix came in second to HBO with 27 Emmy wins, and weeks later, grabbed the rights to “Seinfeld,” which will hit the service in 2021.

Looking ahead, the fourth quarter has typically been Netflix’s biggest quarter when it comes to adding new subscribers. Several major releases will hit Netflix during Q4, including “El Camino,” which debuted last week, and Martin Scorsese’s upcoming mafia epic “The Irishman,” while popular shows like “Peaky Blinders “The Crown” are set to return.

Netflix forecasted it’ll report $5.4 billion in sales and add 7.6 million new customers next quarter.

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