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Netflix's 2Q global paid subscriber additions miss expectations

Netflix (NFLX) reported quarterly global new paid streaming subscribers that fell sharply short of estimates, as a weaker slate of content contributed to an unexpected decline in the company’s U.S. subscribers.

Here are some of the key numbers from the report, with expectations based on Bloomberg-compiled consensus data:

  • Revenue: $4.92 billion vs. $4.93 billion expected

  • Earnings per share: 60 cents, vs. 56 cents expected

  • Total streaming paid net additions: 2.7 million, vs. 5.06 million expected

  • Domestic paid subscribers: Loss of 126,000 vs. gain of 309,240 expected

  • International paid subscribers: Gain of 2.83 million, vs. gain of 4.75 million expected

Netflix exited the quarter with 151.56 million global streamers, inching above the 150 million mark for the first time. However, the pace of new additions slowed considerably, braking even more sharply than the company had warned of prior to results. The company unexpectedly lost subscribers in its domestic market in the three months to June, marking the first quarterly drop in U.S. customers since 2011.

Shares of Netflix fell 10.59% to $324.07 each as of 9:31 a.m. ET Thursday.

Netflix global paid net adds by quarter (forecast vs. actuals)

In April, the company guided toward a deceleration in quarterly net subscriber additions, saying at the time it expected to add 5 million new paying viewers. Such a result would have represented an about 8% decline over the comparable quarter last year. Instead, Netflix’s global net subscriber additions actually dropped by about 48% compared to the second quarter of last year.

“As you can see over the past three years, sometimes we forecast high, sometimes we forecast low,” CEO Reed Hastings said during an investor presentation Wednesday. “This is one where we forecasted high.”

“There was no one thing,” he added. “It’s easy to over-interpret the quarter membership adds, which are a bit noisy.”

Despite the miss on subscriber additions in the second quarter, Netflix is still aiming to see full-year paid subscription additions come in higher this year versus last year, Hastings added.

Some analysts speculated ahead of earnings that Netflix’s hiked subscription prices at the beginning of the year might pose a drag on new additions. Others, however, maintained that any soft new subscriber numbers or churn would be short-lived. Netflix noted in its report Wednesday that its missed forecast applied to all regions, but “slightly more so in regions with price increase.”

For the third quarter, Netflix expects to grow paid memberships by 7 million, comprising 800,000 domestic additions and 6.2 million international additions. This compares to global subscriber additions of 6.1 million in the comparable quarter last year.

Competition heats up

The second-quarter results come as Netflix has faced an increasingly crowded field of competitors in the streaming space. Disney (DIS) plans to launch its own streaming service in November, while Apple (AAPL) and Comcast’s (CMCSA) NBCUniversal have announced competing video platforms of their own.

However, Netflix blamed its weaker-than-expected subscription results on its second-quarter content offerings, rather than on new entrants to the streaming space.

“We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region,” the company said in its shareholder letter. “Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.”

Nevertheless, an increase in competition has been a driving narrative surrounding Netflix’s long-term prospects, especially as competing companies announced plans to remove some of the streamer’s most popular shows for use on their own platforms.

AT&T announced earlier this month it would pull “Friends” from Netflix to place it on its own service, HBO Max, set to launch in spring 2020. And Comcast is set to pull “The Office” from Netflix in 2021, moving the hit series to its own streaming platform.

Even as some content leaves the platform, Netflix grows through that, “We believe, by making these early investments in original programming and getting our consumers and our members much more attuned to the expectation that we’re going to create their next favorite show, not that we’re going to be the place where you can get anything every time,” Ted Sarandos, Netflix chief content officer, said during Wednesday’s investor presentation.

“We think there’s more value in that proposition than there would be in the low-priced aggregator,” he added.

London, UK - July 31, 2018: The buttons of the streaming app Netflix, surrounded by BBC iPlayer, Speedtest, News and other apps on the screen of an iPhone.

As of July 9, nearly 41 million consumers watched the third season of Netflix’s “Stranger Things,” which released on Independence Day, with over 18 million people having already finished the entire season. The debut of the latest season of “Stranger Things” will be captured in Netflix’s third-quarter earnings results.

This year will also bring films from critically acclaimed directors Martin Scorsese with “The Irish Man,” which will have plenty of star power with Hollywood veterans Robert De Niro and Al Pacino as the leads.

Separately, Michael Bay is directing “Six Underground,” which has “Deadpool” star Ryan Reynolds attached.

Updates with opening share prices Thursday, July 18, 2019.

Emily McCormick is a reporter for Yahoo Finance. Follow her @emily_mcck

Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.

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