Netflix Earnings Show (Inevitable) Subscriber Slowdown

For Netflix, growth — yes, it’s there — but not pandemic-level-stuck-at home growth.

To that end, Netflix’s latest earnings shows that the torrid pace of subscriber additions cooled slightly — but enough to disappoint investors, who sent shares down roughly five percent after hours.

In other words, after two quarters of massive subscriber adds spurred by the pandemic, perhaps the runway is getting just a bit shorter. Or maybe it’s just a pause.

In terms of headline numbers, the company added 2.2 million paid subscribers, and the Street had expected additions of 3.3 million subscribers.

Drilling down into the data, North America saw growth of 180,000 subscribers.  The APAC region logged one million new paid subscribers.

As for other data watched by Wall Street, the company posted earnings of $1.74, which was 18 percent higher than last year, but which was below the $2.13 that had been expected.

Netflix said that revenues were up 23 percent year over year to $6.4 billion. The Street had expected $6.3 billion.

But Netflix noted that its own forecasts had been for 2.5 million new additions.  In the post earnings presentation, commentary had said that past quarters had “pulled forward” demand.  CEO Reed Hastings said that COVID represented an impact that is “one-time” in nature.  Churn is in line with expectations, he said.  The company remains on track to deliver 150 more original productions through the rest of the year and already has completed production on 50 other projects.

In other details relayed during video interviews posted to the company’s site on Tuesday, CFO Spence Neumann said that COVID had been a huge driver for the first half, and noted that the company had managed to “land” within 300,000 members of its forecast — and said that out of a base of roughly 195 million members, the latest data represented “forecast noise.”

Over the past three quarters, the company has grown by 28 million subscribers, more than was seen in all of 2019. VP of Investor Relations Spencer Wang noted that had the quarter been 48 hours longer, the company would have come in above its forecast for the quarter.  Management is targeting 6 million paid net additions in the current, fourth quarter, which itself is lower than the 8.8 million that had been seen in the fourth quarter of last year.

Commentary from the call also noted that the company, which had walked away from free trials in the U.S., may consider giving everyone free access in a given country to Netflix for a weekend, according to COO Greg Peters, as an effective way to introduce the company to potential new members.  Peters also said, in response to questions about app stores and other points of engagement, “On iOS for quite some time, we’ve been signing up members on those devices through the mobile browser, using our own payment method.” He said during the video interview that “we’re not dependent on the App Store for discovery, we’re not dependent on the App Store for payment. And we’ve seen steady, solid growth through that channel.”