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Netflix disappoints market

Netflix seriously disappointed the market with its Q2 numbers released after the market had closed on July 18th. In after-hours trading its stock price crashed down 15 per cent. Investors had been expecting net new subscriber numbers of 2.5 million, but Netflix CEO Reed Hastings reported that the OTT company had managed to add only 1.7 million during the quarter-year. For Q2 last year, Netflix added a net 3.2 million new subs.

The company has 83.1 million subscribers on its books.

US domestic growth was miserable (a net 160,000, against an expected 500,000).

“We are growing, but not as fast as we would like or have been,” the company said in a statement to shareholders Monday. “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.”
Netflix said that additions of subscribers were “on target,” but that its churn rate “ticked up slightly and unexpectedly”.

Somewhat bizarrely, Hastings blamed the press for the fall, citing unfavourable reports over the company’s $2 a month price hike. “People don’t like price increases, we know that. It’s a necessary phase for us to get through,” Hastings said during his conference call with analysts. “With the increased revenue, we’re continuing to invest in better and better content, so that’s what makes us feel very strong and positive about the long term and that this is a short term phenomenon.”

Analysts at MoffettNathanson summed up the results, saying: “Another quarter that makes you stop and think”, and also focus on the press reports, saying: “What does it say about consumer demand for a product when press reports of higher pricing, not actual price hikes themselves, drive higher churn in a quarter? Pay TV operators have been lifting prices for decades at rates that are comfortably ahead [inflation] yet churn has remained fairly steady.”

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