Netflix shares plunge as growth in subscriber numbers slows

Emmett Rice
July 18, 2018

Currency had a +$65 million impact on worldwide revenue year over year (+13% global ASP growth on a FX neutral basis), but this positive impact was smaller than we had forecast 90 days ago as the U.S. dollar strengthened meaningfully against many currencies since our Q1'18 earnings report in April. This sent Netflix shares tumbling 12.6% (at time of this posting) in after-hours trading. The shares had more than doubled before the sell-off.

Netflix's outlook for the current quarter also reflected a deceleration: The world's largest paid online TV network expects to add 5 million customers, a slower pace than a year earlier. Its total base of 57 million subscribers in the USA dwarfs Hulu's 20 million users and HBO's 5 million.

Netflix said operating margins would be narrower than previously expected because of the rapid strengthening of the USA dollar, which appreciated by more than 5 percent against major trading partners' currencies in the second quarter.

Earnings per share came in at 85 cents, beating the 79 cents predicted by analysts surveyed by Thomson Reuters I/B/E/S.

Netflix said in a letter to shareholders that it had overestimated the rate of new shows being added to the platform over the quarter, but remained confident that this would not affect its long-term growth.

That comes out to 4.87 million new subscribers for the quarter, far below the 6.2 million Netflix was hoping for.

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Revenue in the three months ended in June rose to $3.9 billion, yielding earnings per share of 88 cents. Netflix has borrowed money repeatedly to pay for its programming, and expects to spend between $3 billion and $4 billion more in cash than it will generate in 2018.

Netflix already has been battling challenges from Amazon, Google's YouTube and Hulu in the video streaming market, and it is likely to face even stiffer competition as other formidable rivals try to muscle into the market.

"Our viewing is setting year-over-year records, the shows that we have coming", he said in a conference call on Monday.

Walt Disney is hoping to close on a deal to buy prized entertainment franchises from 21st Century Fox to feed into a video streaming service Disney will debut next year.

AT&T is planning to hike spending on HBO to make it more competitive with Netflix, and Apple and Facebook are also raising their investments in content.

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