Netflix released its second-quarter earnings on Monday, and though the company had mostly good news to report, its stock dropped 15 percent in after-hours trade because of one big problem: Its once unstoppable subscriber growth is slowing down.
The streaming service reported $1.97 billion in revenue and a profit of $40.8 million, but it admitted that it had only added 1.54 million subscribers, a pretty big fail considering its own prediction that it would collect 2.5 million this quarter. The company wrote in its report, “We are growing, but not as fast as we would like or have been. Disrupting a big market can be bumpy.” Bump.
Netflix added 160,000 U.S. subscribers and 1.52 million international subscribers in the second quarter, but it had projected that those numbers would be 500,000 and 2 million respectively. Meanwhile, the company has had slowing U.S. subscriber growth in every one of the last four quarters compared to the previous year.
The company’s $40.8 million profit, or 9 cents per share, beat analyst predictions of 2 cents per share, but the good news couldn’t overshadow the bad. Netflix said that some subscriber “churn” (users canceling their subscriptions) was attributable to a $1 per month price increase that rolled out for new customers last year and is taking effect for grandfathered customers in 2016. “We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” the company said in its statement.
Netflix is still powerful in the streaming sector, of course, and is doing reasonably well financially, but the question is whether the company has reached a saturation point, both in the U.S. market and internationally. As with iPhones, there will eventually come a time when everyone who wants to subscribe to Netflix already does. And the company reported that streaming services have had setbacks in China, a potentially crucial market. It said, “We continue to explore options [in China] and, in the meantime, have plenty of work to do in our newly opened markets.” It’s never promising when you’re using “in the meantime” in an earnings report.