Surge in cancellations after price hike sees Netflix miss expectations

A surge of customer cancellations in the second quarter in advance of a price hike caused Netflix subscriber expansion to miss expectations by a wide margin and sent shares 16 per cent lower in extended trading Monday.

“We are growing, but not as fast as we would like or have been,” the California-based Internet video service said in its earnings release after markets.

Netflix said it added 1.7 million subscribers in the quarter — 160,000 in the U.S. and 1.52 million internationally — to lift the company’s total to 83.2 million. The growth, however, misses internal guidance for 500,000 new domestic subscribers and two million internationally.

Net income for the April to June quarter of $41 million (U.S.) or 9 cents per share topped market forecasts for 2 cents while revenue of $1.97 billion, trailed analyst expectations for $2.11 billion.

Netflix blamed the disappointing net subscriber numbers on cancellations by customers facing price increases of as much as $2 per month as a two-year rate freeze expired. Netflix shares fell to $82.59 from $98.81 in regular Nasdaq trading.

“People don’t like price increase,” said CFO David Wells in an earnings call suggesting that the revenue generated from the move will be invested in movie and TV content. He also said new sign ups were in line with expectations

Netflix has upped prices for new members and is phasing in increases for existing subscribers in moves that will add an estimated $470 million in annual revenue.

The company is the leading streaming service in Canada with 5.2 million paid subscribers, according to a recent Solutions Research report which said Netflix has added more than a million customers in Canada since last summer.

International growth forecast have been moderated, the company has yet to specify a time frame for a China debut and says it is still learning to tailor content to such international markets as India and Japan.