Netflix Misses Targets, Shares Tank

Netflix Inc’s subscriber growth fell short of Wall Street expectations on Monday, sending shares of the normally high-flying stock down 14 percent on fears that the company’s rapid expansion is slowing, reports Reuters.

The streaming video pioneer added 5.2 million customers from April through June, 1 million fewer than forecasts from Thomson Reuters I/B/E/S, as it added new programming including “Lost in Space” and new episodes of Marvel’s “Jessica Jones” and “13 Reasons Why.”

“We had a strong but not stellar Q2,” Netflix said in a quarterly letter to shareholders.

Before the earnings report, Netflix shares had gained 109 percent, making it the second-strongest performer on the S&P 500 index. In after-hours trading on Monday, Netflix shares sunk 14 percent to $343.60, eroding $24.2 billion in market capitalization and down from an earlier close of $400.48.

Wall Street had been betting that Netflix would deliver outsized growth as demand for online entertainment increases around the globe. The company is spending heavily to hook new customers, budgeting $8 billion for programming and $2 billion for marketing in 2018.

Netflix added 670,000 subscribers in the United States, well below analysts’ estimates of 1.19 million, according to Thomson Reuters I/B/E/S.

Reed Hastings

According to The Wall Street Journal, Netflix blamed its subscriber miss on faulty internal forecasting and not on business reasons, like recent price increases. The company has had such guidance problems in past quarters, missing forecasts three times in the past 10 quarters, each causing gyrations to its share price.

On a video interview to discuss earnings, Chief Executive Reed Hastings said “we’ve seen this movie” before, regarding missed targets. He said Netflix executives never quite figured out why they similarly missed a quarterly forecast two years ago. There’s “lumpiness in the business,” he said, and the miss doesn’t affect his optimism for the business.

“Fundamentals have never been stronger,” Hastings said. “Our viewing is setting year-over-year records. We’re feeling very strong.”

For the current quarter, Netflix projected it would add 5 million customers. It is making a big push in India. Earlier this month, it debuted its first Indian original series, “Sacred Games,” part of a slate of new shows aimed at the vast Bollywood entertainment market.