In recent months questions have arisen about Netflix’s future as it faces a growing list of streaming competitors. The future could be coming sooner than expected.
Netflix reported subscriber numbers far lower than even its own estimates for the second quarter, causing a Wall Street sell-off and fears the streaming service’s dominance could be weakening.
The company’s number of U.S. subscribers dropped by 126,000 in the second quarter; analysts had expected them to increase by 352,000 and Netflix had projected growth of 300,000.
It was the first time the company has seen a quarterly drop in domestic subscribers since it began its explosive growth earlier this decade.
And while earnings and revenue were largely as expected by analysts – $4.92 billion compared to an expected $4.93 billion on the latter – Netflix’s international subscribers grew by just 2.83 million compared to the 4.81 million analysts had predicted. Netflix had given guidance of 4.7 million new international subscribers for the quarter.
Investors sent the stock down 11% in after-hours trading.
Netflix still boasts some 150 million subscribers globally and remains the service of first resort for many consumers. But the prospect of a subscriber slowdown is compounded by the launch of new services, including Disney+ in the fall and HBO Max next year, competing for viewers’ dollars.
In an investor letter, Netflix explained the bleak numbers as part of a “pull-forward” effect from the first quarter, when subscriber additions nearly totaled 10 million worldwide.
The streamer also saw lower subscriber figures in the second quarter last July, which is attributed to seasonality and expected a bounceback in future quarters, which largely happened.
But the coming months could be trickier. WarnerMedia recently decided against renewing its deal for Netflix to air “Friends” as it prepares to launch its own service, and NBC Universal is doing the same for “The Office.” Both shows are very popular, and their departure could lead, investors fear, to mass subscriber exits.
Netflix has been ramping up its original content to combat these departures and keep its service a must-have. Executives in the letter pointed to the debut this month of the new season of “Stranger Things,” which according to Nielsen garnered 26.4 million viewers in its first four days of release.
In a note last week, Wedbush Securities analyst Michael Pachte said that despite the popularity of these originals, it “is unclear whether Netflix can replace it with quantity and quality sufficient to keep its current subscriber base loyal.”
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