The big number: Shares of Netflix
have plunged after its quarterly earnings Wednesday in which the streaming service said it added fewer new members than expected. Netflix released a third-quarter financial report showing that the company has grown to 53.1 million total members worldwide, but the addition of 3.02 million subscribers in the third quarter fell below the company’s previous prediction of 3.69 million.
Despite the poorly received subscriber statistics, Netflix hit Wall Street’s revenue estimates in the third quarter by bringing in $1.4 billion. The company also reported profits of $59.3 million, or 96 cents a share, up from $48.4 million in last year’s third quarter. However, Netflix is only predicting earnings of 44 cents per share for the current quarter, which is far below the 91 cents per share that analysts had predicted, according to Bloomberg.
What you need to know: The disappointing subscriber totals knocked more than $115, or 26%, off each Netflix share to erase all of the company’s gains for the year.
Investors continue to be concerned about Netflix’s ability to hit membership growth goals after the company raised prices for new members by $1 earlier this year. Earlier this year, the company said it had topped 50 million streaming subscribers. At the time, the company added a better-than-expected 1.7 million members.
In a letter to shareholders, Netflix CEO Reed Hastings and CFO David Wells blamed the third-quarter’s poor membership growth on this year’s price hike while adding that the effects were likely not felt in the second quarter because of “the large positive reception” to the second season of the popular Netflix original television show Orange is the New Black.
“As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago. Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the U.S.,” the Netflix executives wrote in a letter to shareholders.
In the U.S., specifically, the number of net new subscribers dropped to 1 million last quarter from 1.3 million during the same period last year. Netflix says it sill expects to add another 4 million new members in the fourth quarter, including 1.85 million in the U.S. and another 2.15 million overseas. Coming into Wednesday, the company’s stock had risen more than 20% on the year and had recently been buoyed by Netflix’s launch in six new European countries, led by France and Germany.
What you might have missed: Hours before Netflix released its latest financial report, Time Warner
and HBO announced that the latter’s online streaming service, HBO Go, will be offered as a standalone option starting next year – something cord-cutters everywhere have been clamoring for in recent years. The move was immediately seen as a threat to rival streaming sites such as Hulu and Netflix, with the latter countering later in the day with its own news that Netflix will start streaming all 10 seasons of Friends, starting in January.
Netflix has said before that it views HBO as its biggest competitor down the road, with Hastings and Wells writing to shareholders that the standalone HBO Go service did not come as a big surprise. “It was inevitable and sensible that they would eventually offer their service as a standalone application. Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to Internet TV,” the executives wrote.
Netflix has also been rumored to be in the running for streaming rights to Seinfeld, another iconic television program that would help the company better compete with its streaming rivals. Netflix has also been busy trying to woo new subscribers by bolstering its roster of original programming, which already includes popular and critically-acclaimed programs such as OITNB and House of Cards. Netflix recently signed a deal with Adam Sandler to produce and star in four films for the company, which also has plans to produce a sequel to Crouching Tiger, Hidden Dragon. And, in June, Netflix signed a deal with comedian Chelsea Handler to produce multiple stand-up specials for the site as well as a new online talk show.