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Netflix Disappoints on Subscriber Growth

18 Jul, 2016 By: Erik Gruenwedel

SVOD pioneer misses growth projection by 32%

Netflix July 18 disclosed global subscriber additions are growing — but not as fast as expected. The subscription-streaming pioneer added 1.7 million members in the second-quarter (ended June 30), compared with 2.5 million projected. It added 3.28 million subs during the previous-year period.

It ended the period with 83.18 million members globally, including 79.9 million paid.

Domestic subs grew by 160,000 to 47.1 million (46 million paid), down from 500,000 projected and 900,000 added in the previous-year period.

“We don’t believe market saturation is a key factor in the U.S., given that we experienced similar performance over the same period in multiple countries with differing levels of Netflix market penetration,” CEO Reed Hastings and CFO David Wells co-wrote in the shareholder letter.

In fact, the executives attributed ongoing rollout of a previously-announced price increase to existing members for the increase in churn.

"People don't like price increases," Hastings said. 

International subs increased by 1.52 million, compared with 2 million projected. It finished the period with 36.05 million members (33.89 paid).

Notably, Netflix added 2.37 million international subs last year — when it wasn’t operational in 190 countries.

“We are growing, but not as fast as we would like or have been,” Hastings and Wells wrote. “Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business.”

Not surprisingly, Netflix’s stock plummeted more than 15% in aftermarket trading.

Indeed, international sub growth is key to supporting Netflix’s content spend, which increased $3.1 billion in the quarter to $13.2 in third-party content obligations from the year-ago period.

Netflix said Q3 subscriber growth would be impacted by the upcoming Olympic Games in Rio de Janeiro. It also does not anticipate a boost in domestic subs from a pending agreement with Comcast, which has said it would offer cable subs direct access Netflix through the broadband X1 set-top box. 

The pact isn’t expected to go into effect until after the Olympics.

“We and Comcast will only release Netflix on the X1 when the viewer experience is great,” read the letter. 

Meanwhile, Netflix’s legacy by-mail disc rental service generated $71 million in contribution profit on revenue of $138.7 million, compared with $164 million a year ago. It ended the period with almost 4.5 million members, compared to 5.3 million a year ago.

Net income topped $41 million on revenue of $1.96 billion, compared with income of $26 million on revenue of $1.48 billion a year ago.

About the Author: Erik Gruenwedel

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