Netflix hit by slowdown in subscriber growth

Shares in video-streaming giant dive by 14pc after it reports ‘strong but not stellar’ second quarter

SHARES in Netflix plunged by more than 14pc in after-hours trading, after it missed analyst expectations for subscriber growth by more than a million users, in what it called a “strong but not stellar” quarter.

The streaming company said it had added 5.2m subscribers in the three months to June 30, below analyst forecasts for 6.3m subscribers and its own expectations.

Netflix said: “This second quarter, we over-forecasted global net additions, which amounted to 5.2m vs a forecast of 6.2m and flat compared to [the second quarter] a year ago, as acquisition growth was slightly lower than we projected.”

The figures came as a nasty surprise for investors after a run of solid results, which had seen shares more than double in value in the year to date and had meant it had been the second-best performer on the S&P 500 this year.

It had passed Disney as the most valuable media company in the world in May, despite its revenue coming in well below the media titan, but in post-market trading its market value slipped below those of Disney and Comcast.

The plunge in Netflix’s value after the closing bell follows a warning from analysts at Stifel last week that its shares had priced in above-consensus results. News of the forecast miss also dragged down other tech stocks, with Facebook, Amazon, Google and Apple all slipping after the close.

Netflix has come under increasing pressure in recent months to continue its rampant growth, as investors expect it to be able to attract vast swathes of new users each quarter.

Analysts at UBS had warned that in its mature markets, namely the US, Canada and the UK, competition from the likes of Amazon Prime and Hulu had been growing and subscriber growth appeared to be plateauing.

Netflix spent more than $1bn on marketing in the first six months of 2018, almost double the amount it spent a year earlier, but despite that still missed expectations for subscriber numbers in both the US and its international division. “As a reminder, the quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy, meaning in some quarters we will be high and other quarters low relative to our guidance,” the company said.

Netflix is now forecasting global net adds of 5m users next quarter, against 5.3m for the same period last year.

However, GBH Insights analyst Daniel Ives remained bullish on the stock, saying that, while this was a “near-term gut punch” for the company, the weak- ness in its share price made for a good buying opportunity.

Netflix’s revenue came in at $3.9bn for the period, up 40pc year on year, while its operating income increased 12pc to $462m, thanks to an increase in the price of its subscriptions.

In the most recent quarter, it said films including The Kissing Booth and series such as 13 Reasons Why had proved particularly successful.