×
You will be redirected back to your article in seconds

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.

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

  • survios at the linq

    Not Just Gambling: Las Vegas Is Becoming a Virtual Reality Hub

    Walk into the Linq on the Las Vegas strip these days, and you might not immediately realize you just stepped into a casino. Instead, you’ll stumble across a series of living-room-like lounge setups, complete with leather couches, big-screen TVs, Xbox Ones and Oculus Go VR headsets. There’s also a bar with a massive wrap-around touch [...]

  • Livenation AR Live stream

    Live Nation to Debut AR Live Stream at Music Midtown Festival

    Come September, Live Nation is set to begin streaming live events in augmented reality. The entertainment giant will debut live AR broadcasting at the Music Midtown festival in Atlanta, Georgia, where attendees will also be able to unlock filters and other AR effects. Live Nation announced the new initiative at the Cannes Lions festival Thursday, [...]

  • Adam Driver appears in The Report

    Amazon’s ‘The Report’ Gets U.K. Theatrical Release Ahead of Streaming Launch

    Amazon Studio’s “The Report” will be released theatrically in the U.K. three weeks before it lands on the Prime Video streaming service. The Scott Z. Burns film tells the story of Daniel J. Jones, a U.S. Senate staffer who worked to reveal that truth about an “enhanced interrogation” program run by the CIA in the [...]

  • Netflix HQ LA

    Netflix Engineers Developed a Rumble Pack Feature During Latest Hack Day

    A duo of Netflix employees had a unique idea for making the service’s shows even more stirring: They added a rumble pack option to the Netflix app as part of the company’s latest hack day. When watching shows like “Voltron,” the feature makes phones vibrate in sync with the action on the screen, similar to [...]

  • Apple - iPhone-XR-launch-Covent-Garden-London

    Apple Warns New Tariffs Would Impact iPhones, iPads, Macs

    Apple has told U.S. trade representative Robert Lighthizer in a filing that all of its major products would be impacted if the U.S. enacted a fourth round of tariffs in its escalating trade war with China. CNBC was first to report about the filing Thursday. “The proposed tariff list covers all of Apple’s major products, [...]

  • Amazon Music

    Amazon Music Launches on Comcast's Xfinity X1 Set-Tops

    Amazon Music is rolling out on Comcast’s Xfinity X1 — the first pay-TV distribution deal for the ecommerce company’s music service. The cable operator’s addition of Amazon Music comes six months after it added Amazon Prime Video to the X1 lineup. Prime Video quickly became one of the most-used apps on the service, which prompted [...]

More From Our Brands

Access exclusive content