Netflix shares fall 14% after it misses subscriber, revenue expectations

Netflix shares plunge in after-hours trade after forecast miss

Netflix Earnings: Stock Tanks on Weak Subscriber Adds

Shares of Netflix, which have more than doubled since the start of the year, dropped by around 14 percent in after-hours trading. For this quarter, Netflix added 4.5 million subscribers internationally, equivalent to an 8% growth.

Netflix added 5.15 million customers in the three months from April to June, 1 million fewer than forecasts from Thomson Reuters and down from 7.41 million in the first quarter.

Revenue: $3.91 billion. Analysts were expecting $3.94 billion.

Total revenue for the period was $3.91bn (£2.9bn), at a yearly growth of 40.3 per cent. Analysts had expected revenue of $3.94bn. The company has said it plans to spend $14 billion on shows and movies this year.

But while he described the quarter as "strong but not stellar", the CEO was confident in the company's trajectory. Analysts surveyed by Zacks had expected revenue of $4.14 billion.

Netflix said in a letter to shareholders that it had overestimated the rate of new shows being added to the platform over the quarter, but remained confident that this would not affect its long-term growth.

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With more than 56 million domestic subscribers, or about 1 out of every 6 people in the States with an account, Netflix had already been heading towards a saturation point at home.

The overly optimistic projections were "pretty broad across multiple markets", Chief Financial Officer David Wells said on a post-earnings webcast. The reason behind this is that Netflix is now has a free cash flow of negative $559 million meaning they once again spent more in the second quarter of 2018 than they made. While most of the company's revenue growth comes from global markets, the vast majority of its costs remain dollar-denominated.

The company says it expects its operating margin to improve to between 10 or 11 per cent this year.

At the same time, Netflix faces growing competition. Apple Inc., meanwhile, is spending more than $1 billion on original programming. And AT&T Inc has promised to boost investment in HBO after taking over the network in its recent acquisition of Time Warner.

Going forward, "We anticipate more competition from the combined AT&T/WarnerMedia, from the combined Fox/Disney or Fox/Comcast as well as from worldwide players like Germany's ProSieben and Salto in France", the company said in the investor letter.

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