Reed Hastings photographed by Kevin Abosch

Shares tumble for Netflix after disappointing second quarter

The streamer saw one of its worst market openings on July 19, but analysts say the SVOD giant's global dominance isn't under threat.
July 19, 2016

Streaming giant Netflix recorded one of its worst market openings in a year on July 19 — less than 24 hours after the company posted disappointing quarterly results tied to widespread consumer dissatisfaction over a recent price hike.

The SVOD’s stock opened Tuesday at $85.20 per share, a distinctly downward drop from its closing price $98.81 the previous day.  Netflix has only had one lower opening over the past 12 months — $82.79 recorded on the morning of Feb. 5.

CEO Reed Hastings, pictured, tried to maintain an optimistic tone in the live-streamed call to investors on the heels of the Q2 2016 report, but did offer up an apology of sorts for the current state of “volatility.”

“I know it’s not easy on everyone. The big picture is very much intact, and we’re very excited about it,” he said.

Earlier, Netflix revealed it had added 1.7 million subscribers globally (with 1.5 million coming from outside of the U.S.) over the last quarter, finishing with more than 83 million members worldwide.

Those numbers fell far short of the company’s forecast set out three months ago that projected an addition of 2.5 million new members in Q2.

It also added only 160,000 new U.S. subscribers, short of the predicted 500,000.

The company admitted much of the problem is the result of “unexpected churn” among the SVOD subscriber base, with long-standing customers cancelling their accounts largely due to a recent — and highly publicized — decision to increase the service’s monthly costs. (Netflix itself repeatedly refers to the increases, which had been announced in 2014, as “un-grandfathering” in its shareholder letter.)

“We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” the letter states.

Most of Netflix’s longtime customers saw their costs go up in April, with a “standard” package hiking from $7.99 to $9.99 per month.

Netflix execs played down any theories that increased competition in the streaming market — as well as speculation that the VOD market is approaching saturation — has hurt the company.

Instead, the letter reads, “increased competition would show up mostly in soft gross additions rather than churn.”

Kaan Yigit, president of Solutions Research Group, agreed that competition — even from giants like Amazon and Hulu— isn’t much of an issue.

“In the U.S., they (Netflix) are still number one in terms of users versus Amazon Prime and Hulu, and really, we have yet to see any other strong entities yet,” Yigit told StreamDaily in an email.

Yigit said, overall, there’s little reason to panic over the SVOD, noting Netflix’s Q2 global revenue of $1.96 billion remains on par with projections.

“They were able to increase revenue per user by 5.3% in one year at a time when all other video services — mainly paid TV — are trending exactly in the opposite direction,” said Yigit.

The company’s international operations also gave the company something to smile about — despite its expansion into 130 new territories earlier this year, Netflix pulled in $758 million in revenue outside the U.S., (projected in Q1 at $754 million), with a loss of $69 million, as opposed to the $80 million predicted in April.

Yigit expects that Netflix will begin to “take the challenge more seriously” when it comes to international content and marketing strategy.

“One size does not fit all clearly,” he said.

Yigit sees Netflix’s recent deal with CBS to gain the exclusive rights to the upcoming Star Trek reboot in all of its territories save for the U.S. and Canada as a bonus to the company, predicting that it will raise the SVOD’s profile abroad.

Looking ahead, Netflix is now taking a modest approach to its Q3 predictions, estimating only 300,000 additions in the U.S. as the ungrandfathering process continues. It also predicts that the 2016 Rio Olympics will result in more eyes on traditional TV sets and fewer on SVOD, a pattern it observed during the 2012 games.


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