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Netflix Sees Stocks Drop After Fewer Subscribers Line Up In Second Quarter

July 17, 2018 - 5:56 pm

NEW YORK (WCBS 880/CBS News/AP) -- Netflix is in trouble after it saw far fewer subscribers than predicted this last quarter.

The streaming-video company reported Monday that it added 5.2 million new members between April and June, a million fewer customers than it had previously forecast. 

While that number is minuscule up against Netflix overall subscriber base of 130 million, it is significant given how Netflix’s very business model works, Washington Post Entertainment Business Reporter Steven Zeitchik explained.

“This is a company that’s built on adding subscribers at an incredibly rapid rate. This is not a company like Disney that has theme parks and theatrical box office revenue and all that. It’s not a company like Apple or, you know, one of the tech giants, or Google, that has many other sources of revenue. Netflix’s entire business rests on getting subscribers in,” Zeitchik told WCBS 880’s Joe Avellar and Mack Rosenberg. “So if they’re not doing that as fast as they can, and if they’re slowing down a little bit relative to both their previous rates and their projections, that’s big news, and it’s trouble for the company.”

Netflix shares, which as one of the best-performing stocks have soared 109 percent this year, fell nearly 14 percent to $344.60 in after-hours trading on Monday. That erased roughly $25 billion from the company's market valuation.

The video service posted revenue of $3.91 billion in the period, falling short of Wall Street expectations. Sixteen analysts surveyed by Zacks expected $3.94 billion. For the current quarter ending in October, Netflix said it expects revenue in the range of $3.99 billion. Analysts surveyed by Zacks had expected revenue of $4.14 billion.

Zeitchik said Netflix’s disappointing report might be good news for competitors, and likely is not a harbinger of a move away from streaming video.

“I think there were some people I talked to yesterday who said, ‘Well maybe there’s a sort of streaming ceiling. Maybe people are just tired of streaming in general, and that will apply; that slowdown will apply to Netflix as well as to its rivals,” he said. “But I think for the foreseeable future, particularly around the world, there is a lot of room to grow.”

Netflix can go on growing itself, and there is also room for other companies, Zeitchik said.

“There is room for Disney, which is going to be launching their own, what they call direct-to-consumer streaming service next year; Apple, Amazon, and some of the tech giants are either already there or are wrapping up. Apple’s been buying a new show every week from Hollywood producers,” he said. “So I think overall, there is good news there; basically, some more competition for Netflix.”

Despite its second-quarter misfire on subscriber growth, the Los Gatos, California, company reported earnings that beat analyst estimates. Earnings grew 32 percent from last year to $384 million, or 85 cents per share. Revenue climbed 6 percent to $3.9 billion.

(© 2018 WCBS 880. CBS News and The Associated Press contributed to this report.)