Netflix Share Price Plunges 12% Despite Smashing New Subscriber Forecasts

Published On: July 17, 2020Categories: Stocks & Shares2 min read

The share price of Netflix plunged by up to 12% in after hours trading following the release of second quarter results that showed the addition of millions more new subscribers than forecast. The content streaming company took its total number of subscribers to 193 million through the addition of 10.1 million new subscribers over the quarter that ended June 30th. That was considerably more than either the 7.5 million the company had itself forecast, or the 8.2 million new subscribers expected by analysts.

Despite the boost to subscriber numbers coronavirus pandemic lockdown measures provided, investors were disappointed by a much more modest outlook for the current quarter. 5.1 million new subscribers over the current quarter was the consensus forecast of estimates. But Netflix believes a much more cautious 2.5 million is now more likely.

With a record 15.8 new paying subscribers added during the first quarter of the year, followed by the forecast-busing 10.1 over the quarter just concluded, Netflix believes a dip is now inevitable. Lockdown bringing forward the decision of millions of new subscribers over the previous 6 months means, predicts Netflix, there will be less potential subscribers left to take the plunge over the summer period.

The company’s statement summed up the forecast concisely with:

“[We had] huge growth in the first half of this year. As a result, we expect less growth for the second half.”

Investors who hadn’t bargained on the pace of growth over the past few months being a trade off on future quarters to such an extent, reacted to send the Netflix share price down by 12% in after hours trading. That drop has since eased to a little under 7.5%, and it remains to be seen if sentiment will improve further or fall away again before U.S. markets commence Friday trading later today.

netflix inc

Originally founded in 1997 as a DVD-by-post rental subscription business is now one of the world’s largest tech companies, with a market capitalisation of around $230 billion. It leads the streaming market and invests billions of dollars in original content every year, as well as owning the rights to an extensive catalogue of television shows and film.

Competition for television and film streaming subscriptions is heating up though. Disney, Apple and NBC Universal and Sky Group owner Comcast have all launched rival services in the past 12 months to join Amazon Prime, Hulu and Netflix in the competition for subscribers.

The other major announcement made by Netflix yesterday was that Ted Sarandos, the company’s chief content officer, will step up to become co-chief executive. He will share the role with Reed Hastings, Netflix’s founder.

About the Author: Jonathan Adams

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