Netflix shares plunge as growth set to slow

Streaming giant hit by impact of pending price increase

Reed Hastings, co-founder and CEO of Netflix. The streaming video service forecast US and international subscriptions would grow at a slower pace than Wall Street expected this quarter. (Photograph: Steve Marcus/Reuters)
Reed Hastings, co-founder and CEO of Netflix. The streaming video service forecast US and international subscriptions would grow at a slower pace than Wall Street expected this quarter. (Photograph: Steve Marcus/Reuters)

Streaming video service Netflix forecast US and international subscriptions would grow at a slower pace than Wall Street expected this quarter, sending its shares tumbling 8 per cent in after-hours trading on Monday.

Netflix said it expected to add about 500,000 customers in the United States in the second quarter that ends in June, compared with Wall Street targets of 586,000, according to FactSet StreetAccount. The forecast includes a “modest impact” from the beginning of a price increase for its monthly movie and TV subscription service, the company said.

The company known for its original shows including “Orange is the New Black” and “House of Cards” said it expected to add about 2 million subscribers in markets outside the United States, versus analyst expectations of 3.5 million, according to FactSet. It also reported results for the first quarter, when subscriptions outpaced its own target.

Netflix is prone to large stock price swings as investors bet on the possible success of its mission to redefine television viewing around the world. The company’s long-term results depend in large part on how fast and profitably it expands.

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Netflix has launched in almost every country in the world, at a substantial cost, and now faces the task of adapting the service to different markets and cultures as competitors also rush in. In January, Netflix went live in more than 130 countries, a huge global push by chief executive Reed Hastings to counter slowing growth in the United States. Initial sign-ups were limited in some countries because the service at this point offers only English-language content and does not accept all of the local payment options, Hastings said on Monday.

“Over the next couple years as we further localise, we’ll be able to see more opportunity,” Hastings told analysts on a conference call.

Netflix has not yet launched in China, where it has been exploring an entry for some time. It said on Monday it was “continuing discussions” and that “whatever we do,” the Chinese market would have only a modest financial effect near-term.

The company previously promised “material” global profit in 2017 as it begins to reap the benefits of its costly expansion. A spokeswoman said Netflix is sticking with that forecast. “I think that people who relied on unbridled international growth are beginning to have second thoughts, and the company now faces domestic competition that may limit its ability to grow domestic profitability,” said Wedbush Securities analyst Michael Pachter, who has an “underperform” rating on the stock.

Amazon. com announced it would offer its video streaming service as a standalone monthly subscription as it looks to drive membership in its Prime subscription service.

Netflix said its forecast for fewer international additions than the prior year was due to tough comparisons with the year-ago period when it had launched in Australia and New Zealand. The company will start boosting rates for more than half of its US members from May. “We are rolling this out slowly over the year, rather than mostly in May, so we can learn as we go,” the company said in a statement.

Netflix also said it expected to increase its spending on movie and TV content from about $5 billion in 2016 to more than $6 billion in 2017. From January through March, Netflix added 6.7 million subscribers, bringing its worldwide total to 81.5 million. Net income for the quarter was $28 million. Earnings per share came in at 6 cents, beating the forecast of 5 cents from analysts surveyed by Thomson Reuters I/B/E/S. Over the past year, Netflix stock had risen more than 60 per cent, making it the No. 3 performer on the S&P 500. The company’s shares were down 8 per cent at $99.70 in after-hours trading on Monday.

Reuters