Netflix shares plummet after company reveals disappointing subscriber growth

Ivan Schwartz
July 17, 2018

Over the previous eight quarters, the company has on average topped its total net subscriber addition guidance by about 1 million, with three-quarters of that coming from worldwide markets, according to Wedbush Securities analyst Michael Pachter. While it's one thing for Netflix to fall short of Wall Street expectations, it's another matter entirely for Netflix to fall short of its own internal projections.

Netflix said it made a profit of $384 million on revenue of $3.9 billion in the recent quarter, compared to net income of $66 million on $2.8 billion in revenue in the same period a year ago.

Netflix said in a letter to shareholders that it had overestimated the rate of new shows being added to the platform over the quarter, but remained confident that this would not affect its long-term growth. "Now future projections are suspect and that decimates valuation", said Eric Schiffer, chief executive officer of private equity firm Patriarch. Ever since Netflix released "House of Cards" in 2013, the company has credited new seasons of original series with luring customers.

Bloomberg claims that potential new customers may have also been distracted by the World Cup, a quadrennial soccer tournament that is among the most-watched TV events in the world. It posted $3.91 billion, compared with an average estimate of $3.94 billion.

For the current quarter, the company is projecting revenue of $3.988 billion, below the consensus for $4.126 billion.

Netflix has spent billions of dollars on original content, backing films or shows from creators from a gamut of countries and cultures as it strives for broad appeal as a global television service.

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The company says it expects its operating margin to improve to between 10 or 11 per cent this year.

Total revenue for the period was $3.91bn (£2.9bn), at a yearly growth of 40.3 per cent. Analysts had expected revenue of $3.94bn.

"We had a strong but not stellar Q2 (second quarter)", Netflix said in a letter to shareholders.

Netflix has been paying up big time for its content. Netflix said Monday that it expects content expenses to hit $8 billion this year.

Netflix shares have doubled in value this year, and just this week the company surpassed HBO with the highest number of Emmy nominations of anyone, with 112.

Netflix said Monday that it expects more competition, but dismissed any potential negative impact on its business.

Other reports by GizPress

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