Netflix Disappoints Wall Street as Subscriber Growth Slows


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Reed Hastings, chief of Netflix, in January. On Monday, he apologized for volatility in the company’s stock. “I know it’s not easy on everyone,” he said. “The big picture is very much intact, and we’re very excited about it.”

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Robyn Beck/Agence France-Presse — Getty Images

Netflix isn’t looking so invincible anymore.

On Monday, the company disappointed Wall Street with the news that subscriber growth for its streaming video service had slowed significantly during the second quarter. Also disconcerting was that Netflix added far fewer subscribers over all during the period than expected, which the company blamed on news media coverage of its plans for price increases.

Netflix added just 1.7 million new streaming members in the three months that ended June 30, about half the 3.3 million net additions from the same period the previous year. That anemic growth — for both United States and international subscribers — came in well below its forecast of 2.5 million new members.

The development sent Netflix shares down as much as 16 percent in after-hours trading on Monday, representing the second earnings report in a row that has sparked a double-digit plunge in the company’s stock price.

Reed Hastings, the company’s chief executive, typically avoids getting swept up in the ecstasy and the agony for Netflix on Wall Street and beyond. Yet during an earnings call, he apologized to investors “for the volatility.”

“I know it’s not easy on everyone,” he said. “The big picture is very much intact, and we’re very excited about it.”

Mr. Hastings finds himself in a starkly different position from just six months ago, when he stood onstage at the big consumer electronics show in Las Vegas and declared that Netflix would conquer the global market for streaming television, adding more than 130 countries to its world service map.

At the time, the company’s share had been soaring, surging 135 percent in 2015 as the top performer on the Standard & Poor’s 500-stock index.

So far this year, Netflix’s share price has declined about 14 percent. And Mr. Hastings now is defending the feasibility of the company’s long-term outlook. He reiterated the company’s goal of reaching 60 million to 90 million subscribers in the United States. (Netflix now has 46 million subscribers in the United States.) He also is sticking to his promise to deliver material profits in 2017 and beyond after running roughly at break-even profitability through this year.

“I don’t see why 10, 20 years from now, why every American household isn’t subscribing to Netflix, except for maybe competition,” Mr. Hastings said. “So we’ve got to stay on our toes on that basis.”

Still, the company has much to prove. Executives said that while gross additions were on target, there was more churn than normal, largely because of the completion of its two-year plan to increase monthly prices for subscribers. By the end of this year, Netflix will have completed a so-called grandfathering plan to increase prices. In the United States, three different tiers now cost $8, $10 and $12.

In the United States, Netflix added just 160,000 new streaming members during the quarter. Executives said that neither increased competition from other streaming services nor market saturation was a factor in the slowing growth in the United States.

Outside the United States, Netflix added 1.5 million new subscribers, for a total of 33.4 million.

In a letter to shareholders, Mr. Hastings acknowledged that Netflix was not growing “as fast as we like or have been.”

“Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever,” he said.

Still, some analysts pointed to the company’s financials as proof that it would continue to deliver on its plans in the long term. Net income for the quarter was $41 million, up 58 percent from $26 million during the same period last year. Total revenue was $2.1 billion, up 27 percent from $1.6 billion in the same period last year.

“While results are softer than expected, I think the market is underappreciating acceleration in revenue,” Anthony DiClemente, an analyst with Nomura, said in an email.

“Netflix is transitioning from a story about net growth in subscribers to one of growth in revenue and margins,” he added. “They continue to grow international over the long term, and nothing happens overnight.”

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