Here's Why the Netflix Stock Price Dropped 13% Today

Analysts had projected revenue of $3.94 billion.

Shares of Netflix Inc headed for their worst day in two years on Tuesday, falling as much as 14 percent after reporting a surprise shortfall in new subscribers in a quarter marked by the lack of a blockbuster new show and World Cup soccer.

In its trying-hard-to-be-positive letter (PDF) to shareholders, Netflix said that it had "a strong but not stellar Q2, ending with 130 million memberships". For this quarter, Netflix added 4.5 million subscribers internationally, equivalent to an 8% growth. The company added 700,000 domestic subscribers during Q2, along with 4.5 million overseas, missing company and analyst estimates on both fronts. "Historically, following a net adds miss, Netflix tends to set guidance cautiously and deliver large beats in the following quarters".

Some investors have seen Netflix as the future of television-a sure-to-be dominant hub for all our entertainment viewing. Analysts polled by FactSet expected Netflix to add 6.2 million subscribers total, with 1.2m coming from the United States and 5.01 internationally.

Earnings per share came in at 85 cents, beating the 79 cents predicted by analysts surveyed by Thomson Reuters I/B/E/S. Total revenue rose 40.2 percent to $3.91 billion. Earlier this month, it debuted its first Indian original series, "Sacred Games", part of a slate of new shows aimed at the vast Bollywood entertainment market.

"Netflix is in a business that varies by quarter anyway and perhaps the company shouldn't have gotten too enamored with the insane success of the last two quarters, which was invigorating but not sustainable", Forrester analyst James McQuivey said.

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Hastings said the company would make adjustments to account for foreign exchange rates in order to "steadily" increase operating margins.

Meanwhile, cable distributors are offering smaller and cheaper bundles of channels.

Going forward, "We anticipate more competition from the combined AT&T/WarnerMedia, from the combined Fox/Disney or Fox/Comcast as well as from global players like Germany's ProSieben and Salto in France", the company said in the investor letter.

AT&T is planning to hike spending on HBO to make it more competitive with Netflix, and Apple and Facebook are also raising their investments in content.

"Our strategy is to simply keep improving", Netflix said.

(Copyright © 2015. All Rights Reserved.)
 
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