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Horror for Netflix as it misses subscriber targets

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Shares of Netflix plunged more than 13% Monday after the streaming giant reported second-quarter subscriber growth that missed Wall Street expectations.

Netflix said it added just 670,000 subscribers in the USA for the period ending in June, about half of its own projection of 1.2 million.

Membership in the quarter grew 5.2 million to a total o 130 million, matching the same period past year but a million shy of what Netflix forecast, according to a letter released along with earnings figures. Currency had a +$65 million impact on worldwide revenue year over year (+13% global ASP growth on a FX neutral basis), but this positive impact was smaller than we had forecast 90 days ago as the U.S. dollar strengthened meaningfully against many currencies since our Q1'18 earnings report in April.

"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.

"Simply stated, we don't see any potential for Netflix to deliver operating leverage on its content investment until the company is able to create a sufficient quantity of high-quality owned original programming to allow it to grow its content spending more slowly", Pachter said in a report.

Netflix's outlook for the current quarter also reflected a deceleration: The world's largest paid online TV network expects to add 5 million customers, a slower pace than a year earlier.

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

In a letter to shareholders, Netflix acknowledged the miss: "We had a strong but not stellar Q2", the statement said. The company has said it plans to spend $14 billion on shows and movies this year.

The news of just 5.2 million total subscriber adds was especially pointed for Wall Street given Netflix's addition of 7.4 million in the first quarter, well ahead of the 6.5 million projected then. Revenue rose 5.6 percent, to $3.91 billion. However, the company took the opportunity to brag about overtaking HBO in the Emmy nomination race this year, breaking the latter's 17-year run.

Netflix is expected to face increasing competition in the next year or two.

He added the expectation that despite the weaker-than-expected results, the company was expected to continue to be the leading video streaming service across the US.

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