×

Netflix Blames Missed Sub-Growth Targets on Price Increase, as Stock Gets Hammered

Shares dive 26% in after-hours trading on lower-than-expected subscriber additions

Netflix added 3.02 million overall streaming customers during the third quarter of 2014 — well under its previous projection of 3.69 million for the period, as both U.S. and international growth failed to meet its forecasts.

In after-hours trading, Netflix’s stock plunged 26%, falling $118.59 per share to $330.00. The stock had closed down 0.1% in regular trading, to $448.59 per share.

Netflix posted revenue of $1.41 billion, up 27% year over year and in line with analyst expectations. Net income of $59.3 million (96 cents per share) for the third quarter beating the Wall Street consensus EPS estimate of 92 cents.

For the three months ended Sept. 30, Netflix added 980,000 streaming subscribers in the States and 2.04 million overseas. The company previously had said it anticipated adding 1.33 million U.S. and 2.36 million international subscribers for Q3.

CEO Reed Hastings and CFO David Wells said in a letter to shareholders that, “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.”

In May, Netflix raised rates for new streaming subscribers — by $1, to $8.99 monthly — while promising existing subs their pricing will not change for two years.

Popular on Variety

In hindsight, according to Hastings and Wells, the effect of the price hike through late Q2 and into early Q3 appeared to be offset for about two months by the “large, positive reception” to season two of “Orange is the New Black.”

“We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing,” the execs wrote in their letter.

Hastings, in a later video interview with Wall Street analysts Wednesday, said, “We expect to miss pretty frequently.” The company’s forecasts are “the midpoint — we’ll be a little above that, a little below that every quarter.”

Overall, Netflix ended Q3 with 53.06 million streaming subs worldwide (37.22 million in the U.S. and 15.84 million internationally). Netflix is forecasting adding 4 million streaming customers in the fourth quarter of 2014, with 1.85 million in the States and 2.15 million overseas.

According to Hastings and Wells, for the prior three quarters, “we under-forecasted membership growth. This quarter we over-forecasted membership growth. We’ll continue to give you our internal forecast for the current quarter, and it will be high some of the time and low other times.”

Earlier in the day, Netflix’s stock slipped after HBO announced plans to launch a standalone, over-the-top video service, although shares recovered to finish closing down only slightly during regular trading.

On the earnings webcast, Hastings downplayed the competitive threat posed by HBO’s move. “It’s not much of a change in the direct competitive landscape,” he said. “I don’t think it’s a significant impact on the consumer level.”

Netflix execs were also asked about the company’s recent movie deals: Its pact with The Weinstein Co. to launch the sequel to “Crouching Tiger, Hidden Dragon” day-and-date with Imax theatrical release in August 2015 and its four-picture deal with Adam Sandler.

Content chief Ted Sarandos called Sandler “a real global superstar,” and noted that Netflix’s data shows all of his movies have performed well in markets worldwide, “defying conventional wisdom that American comedy doesn’t travel.”

Asked about the backlash from major theater chains about the day-and-date plan, Sarandos said there’s not much financial impact for Netflix if “Crouching Tiger 2″ doesn’t play in Imax theaters. “The key to it is, we want to give consumers the choice to see it on the big screen. It’s not a low-budget, direct-to-video release,” he said. Sarandos said the negative reaction from the exhibitors was expected, but, he added, “the real story will unfold on Aug. 28 [2015]… we’ll see if it’s on those screens or not.”

Sarandos also said “Orange Is the New Black” has been the most-watched show in France and Germany, where Netflix launched service four weeks ago. However, Netflix doesn’t have streaming rights to “House of Cards,” its other high-profile original series, in those countries.

More Digital

  • Jeff Bezos, Founder of Amazon

    Amazon CEO Jeff Bezos' Cellphone 'Hacked' Following WhatsApp Message From Saudi Crown Prince (Report)

    Amazon CEO Jeff Bezos’ cellphone was very probably “hacked” in 2018 after he received a video via WhatsApp from Saudi Crown Prince Mohammed bin Salman, according to an investigation reported in British newspaper The Guardian on Tuesday. United Nations experts plan to release a public statement Wednesday morning addressing the allegations. The Guardian reported that Bezos, [...]

  • Game of Thrones

    ‘Game of Thrones’ Sweeps Parrot Analytics’ 2nd Global TV Demand Awards

    MIAMI —  “I must check it out. I’ve been hearing a lot about the show,” host Carson Kressley (“Queer Eye”) joked at Parrot Analytics’ 2nd Global TV Demand Awards as “Game of Thrones” swept two of its biggest plaudits: Most In-Demand TV Series in the World, along with Most In-Demand Drama Series. The awards ceremony  [...]

  • Netflix - The Witcher

    'The Witcher' on Track to Be Netflix's Biggest TV Show Premiere Ever, Company Claims

    Netflix said “The Witcher,” the fantasy series starring Henry Cavill, is pacing to be its biggest first-season original TV series ever. “The Witcher,” which debuted Dec. 20 on Netflix, was chosen to be watched by 76 million customer households in the first four weeks of release, according to the company. That would appear to mean [...]

  • The Irishman

    Netflix Adds 8.8 Million Subscribers in Q4, Cites Competition for Lower U.S. Gains

    Netflix beat its forecast for overall subscriber additions for the fourth quarter of 2019, while it brought in fewer than expected U.S. streaming customers. The company added a net 420,000 streaming customers in the U.S. and 8.33 million overseas in the year-end 2019 quarter, for a total of 8.76 million net adds. Netflix had previously [...]

  • Tubi

    Free Streaming Service Tubi to Launch in Mexico in Pact With TV Azteca

    Tubi is heading to Mexico: The free, ad-supported streaming service announced plans to launch in the country later this year as well as a pact with TV Azteca, one of the largest producers of Spanish-language television programming. Under the terms of their deal, TV Azteca will sell advertising and promote Tubi across broadcast and digital [...]

More From Our Brands

Access exclusive content