Netflix stock slammed after subscriber gains come up short

Shares plunge more than 14 percent in after-hours trading

Even with the addition of more than 5 million new subscribers in the last quarter, Netflix had nothing to celebrate on Monday.

That’s because the number of new subscribers was more than 1 million short of the internet TV giant’s own forecasts. That raised some concerns about whether Netflix is reaching a saturation point among its U.S. customer base, and about whether it can continue to grow at strong rates in international markets.

For the quarter that ended June 30, Netflix said it added a total of 5.15 million new subscribers worldwide, with 670,000 coming from the United States, and 4.47 million from international markets. However, in April, Netflix had said it expected to add 6.2 million total subscribers during its second quarter, with 1.2 million new members in the U.S., and 5 million from its other service regions.

Netflix investors keyed in on that subscriber shortfall Monday, driving the company’s shares down by more than 14 percent, to $343.64, in after-hours trading.

“We strive for accuracy (in our forecasts),” said Netflix Chief Financial Officer David Wells, on a conference call to discuss Netflix’s results. “We clearly didn’t hit the (subscriber) number. (But) the background of the business hasn’t changed. People

are increasingly adopting Netflix around the world.”

Chief Executive Reed Hastings was almost nonchalant about Netflix missing its second-quarter subscriber targets, saying, “We’ve seen this movie before,” in reference to Netflix falling short of its secondquarter forecasts “a couple of years ago.”

Netflix ended its second quarter with a total of 130.14 million

subscribers.

Michael Pachter, of Wedbush Securities, said Netflix missing its domestic subscriber forecasts remains a matter of concern, “because investors had hoped that Netflix would grow to 80 million members in the U.S.,” and now it appears the company could be reaching market saturation in its home territory just as competition is preparing to heat up with Disney’s planned proprietary content streaming service.

“If Disney launches a competitive service and price-sensitive customers pick only one, then Disney,

Hulu, Amazon and Netflix will divide those remaining households,” Pachter said. “The miss and low guide (for subscribers) suggest that is happening faster than expected.”

Daniel Ives, chief strategy officer at GBH Insights, called Netflix’s subscriber miss “a clear speed bump,” but he thought its international numbers were “most concerning given this is the linchpin to the core growth thesis for the coming years.”

In addition to its subscriber figures, Netflix reported a profit of 85 cents a share, on $3.91 billion in revenue, while Wall Street analysts had forecast the company to earn 79 cents a share, on sales of $3.94 billion.

Netflix also gave a disappointing outlook for its third-quarter subscriber growth, as it said it expects to add 4.35 million international subscribers, and 650,000 more from the U.S., for a total of 5 million new subscribers by the end of September. That would be fewer than the 5.3 million subscribers Netflix added in the third quarter of last year.