Netflix shares take hit as subscriber slip hints at 'lumpy' road ahead

Culture       Netflix isn’t the world’s most valuable media company any more
       
       	        Lucas Shaw         18 July 2018

The S&P 500 now trades at 22 times earnings, and the average media industry stock is worth just 14 times earnings.

Ives pointed to the company's miss on worldwide subscriptions as particularly concerning. For this quarter, Netflix added 4.5 million subscribers internationally, equivalent to an 8% growth.

Revenue: $3.91 billion. Analysts were expecting $3.94 billion.

With all this, the stock is tanking.

Last night it was revealed in NY, that Netflix added 5.2 million users in the second quarter, about a million fewer than the company predicted.

Wall Street had been betting that Netflix would deliver outsized growth as demand for online entertainment increases around the globe. This is isn't entirely surprising given rising competition in the video streaming market, where Amazon, Hulu, HBO and others are gaining share of subscription video dollars at Netflix's expense.

Netflix will post its prerecorded earnings call at 6:00 pm ET.

It was estimated by eMarketer that Netflix would have 147.5 million individual users this year, an increase of 11% over 2017 and that it would capture almost 74% of US OTT video users.

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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. "As of June 30, Netflix had 130 million subscribers, including 57.4 million in the U.S".

In a letter to shareholders, Netflix acknowledged the miss: "We had a strong but not stellar Q2", the statement said.

"The moat around Netflix's business model does not appear as deep as other models", it said. It brought in $3.91 billion in Q2 but was expected to earn $3.94 billion. Second-quarter revenue was $3.91 billion, which was slightly lower than the $3.94 billion predicted by analysts.

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

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

Disney is also planning its own streaming service, which is expected to launch in 2019. 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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