Netflix’s slowdown sparks fears of streaming bubble
LOSANGELES: Netflix Inc. stunned Wall Street by attracting fewer subscribers than expected last quarter, renewing concerns that the videostreaming service has become an investment bubble.
The shares plunged as much as 15% after Netflix said it added 5.2 million users in the period, about a million fewer than it predicted. The stock pared losses before the US market open on Tuesday, trading down 12% as of 6:18am in New York. 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.
Shareholders and analysts now have the job of weighing whether the slowdown is a blip or a longer-term problem. Netflix’s stock had more than doubled this year, with investors betting that the company will add tens of millions of customers around the world for years to come.
Along the way, Wall Street may have focused more on the allure of the Netflix story, rather than the company’s fundamentals, said Rob Arnott, head of fund advisory firm Research Affiliates.
“They qualify as a bubble,” he said on Bloomberg Television.
The stock’s slide to $353.70 erased about $21 billion in market value.
Netflix executives expressed little concern on a call with analysts and investors, insisting their growth over the past 12 months has still exceeded expectations. Netflix fell short of its forecasts a couple years ago, a shortfall the company blamed at the time on the transition to chip-based credit cards.
“We never did find an explanation to that other than lumpiness in the business,” chief executive officer Reed Hastings said.
One reason for this shortfall may be a lack of content. Netflix released a thin slate of shows in the quarter, relative to its typical output. It didn’t add additional seasons of its biggest hits, such as Stranger Things, nor did a new show become a phenomenon.