Netflix stumbles as it misses subscriber targets

18/07/2018

Netflix fell short of its subscriber target by more than one million for the second quarter of the year, losing 14% of its value in after-hours trading as a result.

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Netflix added 5.1 million households over the three-month period - giving it 130 million subscribers overall with 57.4 million in the US and nine million in the UK. Profits and revenue beat expectations.

The company's disappointing results signalled it was facing stronger competition for customers.

Netflix rapid growth over the past few years has led to a surge in merger and acquisition activity among traditional providers. AT&T recently purchased Time Warner for $81bn.

Disney, which is seeking to purchase 21st Century Fox's entertainment assets in the US, is planning to launch its own streaming service.

Meanwhile rivals Apple, Amazon and Google are building up their own entertainment streaming ecosystems.

Netflix admitted it had overestimated its second quarter subscription growth after consistently undershooting the numbers previously.

It meant that Netflix, whose shares have more than doubled in value in the year to date amid a strong run for subscriber growth, was on course for the biggest drop in its market value in four years ahead of the stock exchange opening on Tuesday.

But the video streaming giant's shares had regained some ground an hour in to the day's trading, down at nearly 9.5%.

The company has forecast a slower rate of household subscription growth during the current quarter.

It is a crucial measurement for investors as subscriptions are key to funding the company's investment in its own TV shows and movies, which is expected to hit $8bn (£6bn) this year alone.

Analysis

Josh Krichefski, CEO, MediaCom, said: “Forecasting subscriber figures for a video on demand service can be a hazy practice, especially as audiences become increasingly fragmented. People have far more choice for how they can view TV and films; from NowTV, Prime Video and even YouTube and Instagram’s new IGTV.

“Netflix has had an impressive growth streak in the past few years, and has continued to invest heavily in its own content to drive new subscribers. But the fact that it has missed its latest growth target – which is not the first time this has happened – goes to show that competition remains fierce when it comes to attracting viewers, no matter the platform.

“There will be some advertisers out there looking to the latest low growth numbers with hope. It’s too early to say, but it may indicate that consumers are not deserting the traditional broadcast channels as quickly as has been predicted, nor are they averse to using other VoD platforms that run ad placements.”

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