Media Moves

Coverage: Netflix falls on weak subscription growth

April 18, 2017

Posted by Chris Roush

NetflixNetflix Inc. beat earnings estimates for the first quarter, but shares of the streaming media company took a hit in after-hours trading Monday after it reported weaker-than-expected new subscriptions for the period.

David Ng of the Los Angeles Times has the news:

The slowdown came despite the release of popular new titles, including the superhero-themed “Marvel’s Iron Fist” and the kid-oriented “A Series of Unfortunate Events.”

For the quarter ended March 31, Netflix reported earnings of 40 cents per share, beating analyst estimates and the company’s own guidance. Revenue came in at $2.64 billion, which was in line with expectations.

Analysts estimated Netflix would earn 37 cents a share, up from 6 cents a share in the same quarter last year. Revenue was projected to increase 35% year over year to $2.64 billion in the first quarter.

Netflix shares have been trading at near record levels. However, investors have been closely watching for signs of a slowdown in growth as the company reaches nearly 100 million subscribers.

The Los Gatos, Calif.-based company reported net subscription additions of 4.94 million for the quarter, falling shy of its guidance.

Seth Fiegerman of focused on the company nearing 100 million subscribers:

Netflix added 5 million members globally in the first quarter of 2017, bringing its total subscriber base to just shy of 99 million users. That comes on the heels of Netflix’s biggest quarter for new subscribers ever.

“We expect to cross the 100 million member mark this weekend,” Netflix wrote in its letter to shareholders Monday. “It’s a good start.”

While touting the milestone on an earnings call Monday, Netflix CEO Reed Hastings stressed that services like YouTube and Facebook each have a billion or more users.

“Our viewing is very large and growing, but nowhere near as big as YouTube,” Hastings said, in response to a question about how much video its customers watch on Netflix. “We definitely have YouTube envy.”

The company is planning a significant marketing push to keep growing. Netflix said it will spend more than $1 billion this year to “drive member acquisition.”

Its continued subscriber growth follows a decision to launch in nearly every country in the world and invest heavily in original content to lure customers.

Anita Balakrishnan of reported that Netflix has content spending obligations of over $15 billion:

The company’s streaming content obligations have risen to $15.3 billion, up from $12.3 billion a year ago. This year alone, the company has said it expects to spend $6 billion, though Wedbush analyst Michael Pachter puts the figure closer to $7 billion.

But the eye-popping spending is part of a long-term bet on one of the company’s biggest strengths, Michael Graham, ‎managing director and senior internet analyst at Canaccord Genuity told CNBC’s “Closing Bell” on Monday.

“The company is actually trying to manage down the amount of content that it’s licensing from other people,” Graham said. “The plan there really is to draw subscribers to the service with content that Netflix builds and produces on its own, and that Netflix owns and doesn’t have to pay royalties on. So what that does is it enables margins to expand over time.”

Series like “Stranger Things,” both produced and owned by Netflix, represent the content that will distinguish Netflix, thanks to appeal in multiple demographics, the company said last year.


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