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Netflix plunges as subscriber growth disappoints

Netflix plunges as subscriber growth disappoints

Last night it was revealed in NY, that Netflix added 5.2 million users in the second quarter, about a million fewer than the company predicted. This Q2, we over-forecasted global net additions which amounted to 5.2m vs. a forecast of 6.2m and flat compared to Q2 a year ago, as acquisition growth was slightly lower than we projected.

Along the way, Wall Street may have focused more on the allure of the Netflix story, rather than the company's fundamentals, said Rob Arnott, head of fund advisory firm Research Affiliates.

"The quarter is a reminder that Netflix's cadence of net adds is not linear, but lumpy in nature", said Justin Patterson, an analyst with Raymond James and Associates in San Francisco, while pointing to the absence of a new hit series as a driver. Following the announcement, the stock was down about 14% at $346.00 in Monday's after-hours session.

Analysts had been modeling $3.94 billion in revenue and EPS of 79 cents. The company added 700,000 domestic subscribers during Q2, along with 4.5 million overseas, missing company and analyst estimates on both fronts.

As of June 30, Netflix had 130 million subscribers, including 57.4 million in the US.

Ranganathan said Netflix pinned the shortfall on overaggressive earnings estimates in a "seasonally weaker [second quarter], partly aggravated by audience distraction from the World Cup".

Netflix Inc. stunned Wall Street by attracting fewer subscribers than expected last quarter, renewing concerns that the video-streaming service has become an investment bubble.

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Netflix also fell short when it came to revenue predictions.

The Silicon Valley based company said it is beginning to "lead artistically" in some categories with its original content, earning enough Emmy nominations this year to break a 17-year top-spot streak by HBO.

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.

Disney, which is seeking to purchase 21st Century Fox's entertainment assets in the USA, is planning to launch its own streaming service.

"Right now, Netflix is still miles ahead of its closest competitor, but there is going to be a giant bulls-eye on Netflix's back during the next 18 to 24 months", Ives predicted in an interview.

"Our strategy is to simply keep improving", Netflix said.


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