Netflix Stock Drops as Subscriber Growth Slows

July 18, 2019
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Netflix (NASDAQ: NFLX) is the largest television and movie streaming service in the world, and it has enjoyed massive growth in recent years. However, the market is changing, and the company now faces increased competition from HBO, Hulu, and other providers. Disney and Apple will soon enter the market with their own streaming services, putting increased pressure on the California based company.

Earnings data was released on Wednesday, and, while the financials were solid, the subscriber numbers show that Netflix will have to adapt to new challenges in the years ahead.

Subscriber Numbers Only Half of Analyst Estimates

Netflix revealed on its earnings call that it added 2.7 million paid subscribers in the second quarter, which was just over half of the 5.3 million that analysts had expected. Netflix had hoped to sign up at least 5 million during the quarter.

Price increases likely contributed to the slowdown in growth. Increases started rolling out earlier this year, and Netflix experienced the biggest slowdowns in regions where prices have gone up.

Netflix itself believes that a lack of original content was a significant contributing factor. In a statement to shareholders, the company said that “We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions. Rather, we think Q2’s content slate drove less growth in paid net adds [subscribers] than we anticipated.”

While some investors will definitely hit the panic button this week, there’s still a lot of upcoming content that should keep Netflix competitive in the third quarter. The company has offered guidance for 7 million subscriptions in Q3, with revenue of $5.25 billion.

Subscriptions will be driven by the release of the third season of “Stranger Things”, the final season of “Orange is the New Black”, and new episodes of “The Crown”. These are all highly popular Netflix exclusives that have the potential to attract new subscribers and bring back those who only subscribe on a seasonal basis.

Netflix spent $12.04 billion on new content last year, an increase from the $8.9 billion that it spent in 2017. The company’s experience in developing new shows and films will become an advantage as it faces off against newcomers like Apple later this year.

Netflix Revenue Growth is Still Positive

While Netflix didn’t sign as many new customers as expected, subscriber growth of 2.7 million is not something to be overlooked. The company generated $4.9 billion in revenue during the second quarter, which was up from $3.9 billion a year ago.

Netflix is still the streaming platform to beat, and one of the strongest stocks in the entertainment industry.

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