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Netflix shares tank after big miss on subscriber growth

18 July 2018

The company's stock was down more than 13 percent in early after-hours trading in response to the news.

Subscriber additions: 1.21 in the USA and 5.06 million internationally, according to Bloomberg. Profit was one area that beat predictions, reaching 85 cents per share, above analysts' expectations of 79 cents.

With all this, the stock is tanking.

In the third quarter, Netflix expects to add 5 million subscribers - 650,000 in the USA and 4.35 million internationally.

Netflix is facing growing competition from global tech rivals and traditional providers
Image Netflix is facing growing competition from global tech rivals and traditional providers

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. Two of its originals - "Set It Up", starring Lucy Liu and Taye Diggs, and "The Kissing Booth" - have been "watched and loved by tens of millions of Netflix members", said the company, which is usually reticent to share viewership data.

Netflix executives expressed little concern on a call with analysts and investors, insisting their growth over the past 12 months has still exceeded expectations.

Bottom line: We're used to hearing reports about how Netflix continues to grow and is the most popular TV viewing platform, so its latest earnings report is something of a surprise. Out of the 5.0 million, global subscribers will comprise 4.35 million while United States subscribers will form the remaining 650,000.

"We had a strong but not stellar Q2, ending with 130 million memberships", Netflix said in a letter to shareholders.

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Netflix predicted it will add 5 million subscribers in the current quarter, which ends in September, slightly slower than the pace a year ago.

The company will spend as much as $8bn on programming this year. Revenue rose 5.6 percent, to $3.91 billion.

Netflix said operating margins would be narrower than previously expected because of the rapid strengthening of the USA dollar, which appreciated by more than 5 percent against major trading partners' currencies in the second quarter.

Netflix cited an array of competitors, starting with YouTube.

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Despite the weak quarter, and a lowered outlook for the third quarter, Emarketer expects Netflix to remain the clear leader among video streaming services in the US.

Netflix has been paying up big time for its content. Netflix said Monday that it expects content expenses to hit $8 billion this year. Apple Inc is pouring money into original programming, signing up A-list names including Oprah Winfrey.

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

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Netflix shares tank after big miss on subscriber growth