The streamer’s stock on Tuesday was down as much as 6 per cent on news that it expects to add just 5 million members during the second quarter.
Netflix added more than 9.6 million subscribers during the first three months of the year but warned that the next quarter could see slower growth.
The company, which was expected to add just under 9 million members during the period, now has 148.9 million total paying members. It ended 2018 with 139 million paying members.
During the first quarter, Netflix brought in revenue of $4.5 billion, up 22 per cent year over year, and had earnings of 76 cents per share. Netflix was expected to bring in revenue of $4.5 billion and earnings of 57 cents per share, per FactSet.
The company’s stock on Tuesday was trading down as much as 6 per cent after-hours on the earnings report, though shares eventually settled down around 1 percent. Netflix’s stock market performance is often tied to investor concern over its ability to keep growing at a fast clip, and for the second quarter it projected that it will add just 5 million new members, an 8 per cent drop year over year. The soft quarter comes as increased streaming competition looms for the company, with new entrants from Apple, Disney, WarnerMedia and NBCUniversal on the way.
The three-month period from April to June is also when Netflix is rolling out a price increase for the bulk of U.S. subscribers. The changes to the pricing plans, announced in January, have been taking effect in the U.S., Brazil, Mexico and parts of Europe. The company says the response in the U.S. “is as we expected,” with gross additions unaffected despite some short-term churn.
Investors are watching closely to see how Netflix’s subscriber base responds to new streaming services expected to inundate the market later this year. Less than a week before Netflix’s earnings report, Disney unveiled direct-to-consumer app Disney+, which will feature thousands of film and TV titles from the entertainment company’s library, as well as originals featuring IP from brands Marvel, Pixar and Lucasfilm. In order to launch Disney+, it announced plans to pull much of its licensed programming from Netflix, and it has priced the new service at $7 per month, $2 less than Netflix’s cheapest plan. On March 25, Apple laid out plans for its Apple TV+ offering, which will feature a slate of star-studded originals.
In a taped Q&A on Tuesday afternoon, CEO Reed Hastings brushed off concerns about competition, arguing, “There’s a ton of competition out there, and Disney and Apple add a little bit more. But, frankly, I doubt it will be material.”
One concern has been that, as the studios launch their own services, Netflix’s library of licensed content will shrink, making it a less compelling offering for consumers. A March report, for example, noted that Netflix originals accounted for just 11 per cent of movie and TV titles in the U.S. service. Netflix executives have argued that they predicted that licensed content would become a smaller piece of their overall offering, which is why they have been aggressively investing in original programming. Chief content officer Ted Sarandos did so again on Tuesday, revealing, “If you look at our top 10 most-watched shows on Netflix, they’re all Netflix original brands.”
Netflix also addressed the competition in its shareholder letter, noting, “Recently, Apple and Disney each unveiled their direct-to-consumer subscription video services. Both companies are world-class consumer brands, and we’re excited to compete; the clear beneficiaries will be content creators and consumers, who will reap the rewards of many companies vying to provide a great video experience for audiences.”
– Courtesy: Hollywood Reporter
