Netflix shares sink amid disappointing user growth figures

Netflix shares are lower in out-of-hours trading activity as the streaming giant's user growth figures came in below expectations.

Netflix shares sink amid disappointing user growth figures

Netflix shares are much lower in out-of-hours activity Tuesday, after the TV streaming giant’s second quarter user growth figures disappointed investors. Even upbeat profits and earning more Emmy nominations than competitor HBO, weren't enough to cheer holders of the stock.

Netflix shares ended the US Monday trading session 1.18% higher at $400.48. However, after the markets closed and Netflix reported its Q2 figures, investors sold the stock amid concerns over the company’s ability to remain profitable in the face of growing competition.

Netflix user growth numbers disappoint

Netflix published its Q2 earnings growth figures after the US markets closing bell Monday and some of the numbers proved weaker than had been expected.

Specifically, the US TV streaming firm’s user growth numbers showed Netflix gained 5.2 million new users in the second quarter. That meant it had 130 million subscribers at the end of Q2. While that was the same level of growth as Q2 2017, it was below Netflix’ own estimate of 6.2 million.

Netflix described the quarter as “strong but not stellar.”

Other figures, however, were all in line with forecasts and much stronger than a year ago:

  • Total revenues grew 40.3%.
  • Diluted earnings per share of $0.85.
  • Operating margin of 11.8%.

Netflix also highlighted the success its having with its growing pool of original content.

“In addition to succeeding commercially, we are starting to lead artistically in some categories, with our creators earning enough Emmy nominations this year to collectively break HBO’s amazing 17-year run,” the US streaming firm said in its letter to shareholders.

Q3 outlook

Looking ahead to the next quarterly earnings period, Netflix gave a more modest outlook for subscriber growth. Never-the-less, it’s still anticipating a stronger performance than in Q3 2017.

It’s forecasting 5.2 million new paying users in Q3, up from 5 million in the third quarter of 2017.

In addition, while the growing number of competitors in the streaming market is spooking some investors, it’s helping to drive Netflix to create even more original content for its still growing subscriber base.

“There has never been a better time to be a creator or consumer of content,” Netflix said. “We believe that consumer appetite for great content is broad and that there is room for multiple parties to have attractive offerings.”

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