What's going on?
Netflix announced weaker-than-expected third-quarter earnings late on Tuesday, and investors decided not to pick up the streaming giant for another season: its stock initially fell 6%.
What does this mean?
Netflix only brought in 2.2 million new subscribers last quarter – well below the 2.5 million it promised to deliver, and even further off the 3.5 million analysts were expecting. That meant the streaming giant’s quarterly profit fell short of forecasts too.
After Netflix’s record-breaking first half of the year, it’s easy to see why so many backed its chances. But success is a double-edged sword, and Netflix said the pandemic actually “pulled forward” customer demand. In other words, customers who might’ve signed up last quarter had already joined, leaving fewer potential subscribers out there. Stay tuned for the sequel to that drama: Netflix is forecasting it’ll only add 6 million subscribers this quarter, well short of analysts’ predicted 6.5 million.
Why should I care?
For markets: The more, the merrier?
Netflix has benefited from an increasingly couch-bound world this year: its shares are up more than 60% since the start of 2020 – 10 times more than the US stock market as a whole. And analysts seemed hopeful there’d be more to come: a flurry of them upped their expectations for Netflix’s stock price ahead of these results. They might change their minds pronto now things haven’t worked out as planned…
The bigger picture: In it to win it.
Just last week, Disney announced it’s doubling down on efforts to transform its own service, Disney+, into a global streaming giant. That should worry Netflix: Disney+ only launched last November and it already has 60 million subscribers. That’s still nowhere near Netflix’s 195 million, true, but there are plenty of bored channel-hoppers to go around. And given that there are now eight major subscription providers to choose from, Netflix and Netflix alone might not cut it for much longer.