Netflix Loses 130,000 Subscribers in Q2 After Price Hike

Netflix Inc. shocked investors by reporting a drop in U.S. customers and much slower growth overseas, raising fears that the streaming giant is losing momentum just as competitors prepare to pounce.

The shares plunged as much as 11%, the most in a year, to $323 in New York trading Thursday after Netflix on Wednesday reported the loss of 130,000 customers in the U.S. The company blamed higher prices and a weak slate of TV shows. It signed up 2.8 million subscribers internationally in the period, roughly half what the company predicted.

“Netflix has a difficult road ahead, with looming competition and the removal of popular content,” said EMarketer Inc. analyst Eric Haggstrom. But a stronger lineup of new shows in the current quarter could help attract former subscribers, he said.

The quarter represents the biggest black eye for Netflix since 2011, when the company split its DVD-by-mail business from its streaming business. That move raised prices for its customers, and resulted in the loss of more than 800,000 subscribers in the U.S. The company had planned to call the DVD service Qwikster, but it backpedaled on the plan after investors and customers scoffed at the idea.

Netflix said the miss is a one-time blip rather than a long-term problem. The second quarter has typically been its weakest time of year: The company missed its forecast during the period in three of the past four years.

Netflix looks to add 7 million subscribers in the current quarter, thanks in part to the return of top shows “Stranger Things” and “Orange Is the New Black.”

“Our position is excellent,” Chief Executive Officer Reed Hastings said during a videoconference call Wednesday. “We’re building amazing capacity for content. Our product has never been in better shape.”

Several analysts agreed that the second-quarter disappointment should be only a temporary hiccup for Netflix. Investors should “aggressively buy the stock” on weakness, especially below $325 a share, Loop Capital said.

International results flagged too, with the company missing its own forecast of 4.7 million new subscribers. Europe, Latin America and Asia have been the primary drivers of Netflix’s customer acquisition in recent years, and growth must be sustained if the company is to justify its high valuation.

Netflix is introducing a cheaper, mobile-only package in India to attract customers in a big market with price-sensitive customers.

Street Wrap: Netflix Slump Looks Like an Opportunity to Wall Street

Analysts expect the company to have a blockbuster second half because of a heavy release schedule that includes a new season of “The Crown” and movies by directors Martin Scorsese and Michael Bay. Even after the slowdown last quarter, Netflix still thinks it can have its best year of customer growth in 2019.

But competition is coming. Walt Disney Co. and Apple Inc. plan to introduce streaming services this year, while offerings from Comcast Corp. and AT&T Inc. arrive in 2020. Those services may not steal users from Netflix, but they will make future growth harder, according to Michael Pachter, an analyst with Wedbush Securities.

We saw a preview of next year with this quarter,” Pachter said in an interview with Bloomberg Television. “Next year, they’ll have a couple quarters where they’ll lose subscribers.”

Another challenge: Competitors are taking back rights to programs that have been popular on Netflix, including “Friends” and “The Office,” to use for their own services. That will force Netflix to rely even more on its original productions.

Those efforts have largely been successful. Its shows just earned 117 nominations for the 2019 Emmy awards. But reruns of old shows still constitute the majority of viewing.

The slowdown in users overshadowed the company’s quarterly financial results. Earnings for the second quarter fell to 60 cents a share, but beat analysts’ estimates of 56 cents. Sales grew 26% to $4.92 billion, compared with projections of $4.93 billion.

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