Netflix Inc. shares fell in after-hours trading Tuesday, after the streaming service revealed its worst quarter yet for adding new subscribers and said the current quarter would have fewer additions than Wall Street expected.
The video-streaming giant
on Tuesday reported 1.54 million net new paid subscribers in the second quarter, the lowest quarterly total yet for the company, but beating its own forecast as well as the average analyst forecast of 1.15 million, according to FactSet. The additions look even smaller when put next to gains made earlier in the COVID-19 pandemic — Netflix added more than 10 million net new subscribers in the same quarter a year ago. The gains were all from new overseas subscribers, as Netflix’s subscriber total in the U.S. and Canada declined for only the second time since the company’ began reporting those figures.
Netflix projected 3.5 million net new paying subscribers will join the 209.2 million already on the service in the third quarter, which was not the type of resurgence Wall Street was looking for. Analysts on average expected a bump of 5.5 million new subscribers in the third quarter and 9.64 million in the fourth quarter, according to FactSet.
“COVID has created some lumpiness in our membership growth (higher growth in 2020, slower growth this year), which is working its way through,” executives said in a letter to shareholders Tuesday.
While fewer new subscribers signed on, Netflix made more money after increasing subscription prices. Netflix said it earned $1.35 billion, or $2.97 a share, up from $1.59 a share a year ago but still lower than expectations of $3.18 a share, according to analysts polled by FactSet. Netflix’s revenue soared 19.4% to $7.34 billion, barely beating estimates of $7.32 billion.
Netflix has maintained a wide subscriber edge in a crowded streaming market that includes rivals Walt Disney Co.
and Amazon.com Inc.
despite a dearth of fresh content in the first half of 2021. But with many Americans returning to work — in Netflix’s case, production talent on series and movies — analysts expect Netflix to bounce back in the second half of this year as new shows and movies appear on the service.
The Silicon Valley streaming giant has said it intends to spend more than $17 billion in cash on content this year, and analysts say the returning shows will be a strong catalyst in the second half. Netflix is expecting to release new seasons of popular programming such as “The Witcher” and “You,” as well as movies like “Red Notice,” starring Gal Gadot, Dwayne Johnson and Ryan Reynolds, and “Don’t Look Up,” with Leonardo DiCaprio, Jennifer Lawrence, Cate Blanchett, and Meryl Streep.
That content will wait until the fourth quarter, however.
“Our Q3 slate will include new seasons of fan favorites ‘La Casa de Papel’ (aka ‘Money Heist’), ‘Sex Education,’ ‘Virgin River’ and ‘Never Have I Ever’ as well as live action films including ‘Sweet Girl’ (starring Jason Momoa), ‘Kissing Booth 3,’ and
‘Kate’ (starring Mary Elizabeth Winstead) and the animated feature film Vivo, featuring all-new songs from Lin-Manuel Miranda,” Netflix executives revealed in their letter.
From Barron’s: Subscription Fatigue May Be Setting In Faster Than Expected
The executives also offered more information about their ambitions in videogames, after hiring a seasoned gaming executive from Facebook Inc.’s
Oculus-focused unit last week. The letter said Netflix is “in the early stages of further expanding into games, building on our earlier efforts around interactivity,” which have included interactive television shows on the service and games based on intellectual property developed by Netflix.
“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” the executives wrote. “Games will be included in members’ Netflix subscription at no additional cost similar to films and series. Initially, we’ll be primarily focused on games for mobile devices.”
Netflix shares fell about 3% in the after-hours session Tuesday, after closing with a 0.2% decline at $531.05. The stock is up 1% so far this year, while the broader S&P 500 index
has gained 16.5% in 2021.