What's going on?
Like so many before, Netflix’s sequel to a blockbuster first quarter was a disappointment. The company added fewer new subscribers than it hoped in its second quarter (tweet this) – hitting pause on its stock, which dropped 13% on Monday.
What does this mean?
Last quarter, Netflix added just under 700,000 subscribers in the US and almost 4.5 million elsewhere in the world. However, investors were expecting 1.2 million new Netflix-and-chillers in the US and 5.1 million internationally. To make matters worse, the company said it only expects to add 5 million new subscribers next quarter, a far cry from investors’ 6 million estimate. Some analysts thought Netflix might disappoint because its original content has been “underwhelming” of late – and the company failing to get enough new eyes on its shows could lead more investors to share this view.
Why should I care?
For markets: Netflix’s stock chills.
Netflix’s stock has doubled so far this year, but tumbled after this report. The big shift in the stock price was partly expected but the direction perhaps wasn’t. Investors had been buying Netflix options – the right to buy or sell shares at a predetermined future date, for a pre-set price – and, according to Bloomberg, more people have been buying “call” (right to buy) options than “put” (right to sell) ones, suggesting they believe the stock was likely to rise.
The bigger picture: The competition’s hotting up.
Although Netflix managed to raise its average prices by 14% compared to the same time last year, this could have caused some subscribers to switch to competing services like Hulu, HBO GO or Amazon’s streaming video service. Competition in the online streaming world is likely to get more intense as companies beef up their digital catalogs. Comcast and 21st Century Fox are both pursuing Sky, while Comcast (again!) and Disney also battle to take over 21st Century Fox. At the same time, AT&T’s bedding in its recent acquisition of Time Warner.