Reed Hastings, CEO at Netflix, suffered a 14 per cent crash in his company’s share price July 16th in after-hours trading following disappointing quarterly numbers.
Netflix added a net 670,000 subscribers in the US, and 4.47 million internationally. For any other media business, there would be celebrations, but Wall Street expected more. The consensus was that Netflix would add 6.3 million subs overall.
Hastings described the quarter as “strong but not stellar”, and blamed increased competition from YouTube, HBO, Disney, Amazon and Apple, as well as foreign currency fluctuations as the streaming giants accelerate their international roll-outs. He later explained that an earlier Q2 trading period had also shown “lumpiness” and that normal growth speedily returned.
During the quarter-year, net income rose 32.5 per cent, to $384.3 million (€328.36m). Revenue rose 5.6 per cent, to $3.91 billion (up 40 per cent on 2017).
Not helping was lower guidance for Q3. For its third Quarter, Netflix guides for 650,000 net additions in the US and 4.35 million internationally. Wall Street analysts had expected that Netflix would have Q3 net adds of 947,000 in the US and 5.05 million internationally.
The market might have marked Netflix down, but the bottom line is that Netflix now has 130.1 million subscribers overall, up 25 per cent y-o-y, and its US totals are 56 million and almost 73 million internationally. Another highlight was that this was the first quarter where international revenues exceeded those generated in the US.
“This latest quarter may be a slight falter for Netflix, but it still sets the benchmark for its rivals,” noted Technology, Media & Telco Analyst, Paolo Pescatore. “Typically, this is always a challenging quarter due to seasonality. And more so this quarter given the success of key global events such as the World Cup in driving fans to tune into live TV. This might have a further negative impact on its 3Q18 results. This latest quarter underlines my belief that Netflix needs subscribers and it needs them fast. It is still growing, but not quickly enough in light of its growing costs.”
“Telcos and Netflix need each other. Netflix has been extremely smart, relying on local partnerships as a way of growing its subscriber base. Netflix is doing what it needs to do, solely focused on content. But it needs scale, and this is where the telcos come in, especially those that do not want to invest sums in securing costly content rights.”
“Therefore, expect more deals between Netflix and its service provider partners, which the company sees as crucial going forward to attract new users. The next step is towards deeper integration of Netflix among telco offerings.”
“We should not forget that Netflix is still the first truly global pay-TV service – quite an accolade within a short period of time.”