How new credit cards stunted Netflix’s growth
Netflix’s stock price took a tumble in after-hours trading Wednesday after the company revealed that it had missed its subscriber growth projections in its third-quarter earnings report. The reason, according to Netflix, has to do with a big change in the way we’ll all be buying things in the future.
Oct. 1 was the deadline for retailers to begin accepting a new type of more-secure credit card called EMV or chip-and-pin. All the major credit card companies are adopting this new standard, and they’ve been sending their customers new cards in recent months to get ready for the switch. Anyone who activated a new credit card but didn’t remember to update their billing information for their online subscriptions, like Netflix, might find themselves suddenly locked out of such services.
That’s why Netflix (NFLX) says it only added 880,000 net U.S. subscribers in the third quarter compared to a forecast of 1.15 million. “Our over-forecast in the US for Q3 was due to slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards,” the company said in its quarterly letter to shareholders.
Netflix’s growth rate will face another big test in Q4. The company raised the price of its primary subscription plan by $1 at the start of October and has in the past cited price increases as a reason for slower-than-expected growth.