Netflix Shares Dropping on Third Quarter Financials

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Analysts were expecting the streaming-media company to end the third quarter with 69.73 million subscribers worldwide, though it reported only 69.17 million.

Netflix shares were plunging 13 percent in after-hours trading as the company said it ended the third quarter with just over 69 million streaming customers worldwide — fewer than was predicted — while also generating less revenue and profit than analysts expected.

The company added 880,000 U.S. subscribers during the third quarter and 2.74 million international subscribers, beating its projections internationally but falling short domestically. Netflix had predicted it would add 1.15 million subscribers in the U.S. during the quarter while adding 2.4 million international subscribers.

Analysts were expecting Netflix to end the quarter with 69.73 million streaming subscribers worldwide, but the company said Wednesday it reached only 69.17 million.

Netflix was expected to earn about 8 cents per share on revenue of $1.75 billion, though it earned only 7 cents per share on $1.74 billion. In the same quarter a year earlier, Netflix earned 14 cents per share on $1.41 billion in revenue.

Shares of Netflix had been up 130 percent so far this year, but the stock was taking a beating after the closing bell after having risen fractionally to $110.23 during the regular session.

Analysts cheered last week when Netflix said it would raise its price and consumers didn't seem to care, though this was likely because the price-hike didn't apply to current subscribers. Netflix said new customers would pay $9.99 for its monthly streaming service while older customers remain grandfathered in at $8.99. Two years ago, the price was just $7.99.

In his quarterly letter to shareholders, CEO Reed Hastings boasted about content.

"We are quickly becoming a global distribution platform for creators worldwide," Hastings wrote. "Narcos, our latest original series, is a hit and is another fine example of a Netflix original — embraced by both critics and audiences and global in nature (bilingual, Brazilian director and star, U.S. and Latin American cast, shot in Colombia) with substantial viewing across all or territories."

He also touted Beasts of No Nation, which will debut Friday and is the company's first original movie. He also promoted the first of four original Adam Sandler movies, The Ridiculous 6, set to debut in December. 

"It is clear that Internet TV is becoming increasingly mainstream and traditional media companies are adjusting to the shift from linear to on-demand viewing," Hastings wrote. "It is a great time to be a creator of content because studios make content to sell content (not to withhold it) and there are new bidders for their product."

He said that the decision last month not to renew a deal with EPIX has caused no material reduction in U.S. film viewing at Netflix, and he said exhibition windows are getting even shorter, with Netflix sometimes getting movies just 30 days after their theatrical release. One exception he noted is The Big Short starring Brad Pitt, Christian Bale and Steve Carell, which will play on Netflix "in a more traditional pay TV window several months after theatrical and transactional VOD."

Hastings also noted mounting competition from Hulu, HBO GO and Amazon Prime. "They remain active bidders for content, in addition to all the cable networks around the world," he wrote.

He took a swipe at those who say Netflix is causing consumers to rethink cable television but routinely ignore what Netflix's competitors are up to.

"When you think about new content on Hulu — Hulu is even more of a cord-cutter's dream than Netflix, because it's got network shows the day after," he said.

Hastings also said its original business of mailing DVD's to customers in the U.S. still serves 5 million members and provided $80 million in contribution profit in the third quarter, down 11 percent compared to the same frame last year.

Email: Paul.Bond@THR.com

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