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Netflix shares tumble after missing subscriber target

Netflix
Pasadena city officials are considering whether to tax Netflix and other video streaming services.
(Paul Sakuma / Associated Press)

Shares in Netflix fell sharply in after-hours trading on Monday after the streaming giant reported slower than expected subscriber growth in the second quarter.

Netflix added 1.7 million subscribers worldwide, well below the 2.5 million subscribers the company predicted it would add in the three-month period ending June 30. Netflix rolled out a new season of “Orange Is the New Black” and a second Adam Sandler film (“The Do Over”) during the quarter.

The Los Gatos, Calif. company posted second-quarter earnings of $41 million, or 9 cents a share, beating analysts’ expectations of 3 cents a share for the quarter. Revenue during the quarter climbed to $2.1 billion, up from $1.6 billion from the same period a year ago.

Nonetheless, the slower than expected subscriber growth sent shares in Netflix tumbling by $14.60, or 15%, to $83.30 in after-hours trading. Shares had closed Monday at $98.81, down less than 1%.

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Netflix said it added 160,000 subscribers in the U.S. during the quarter, below the 500,000 it had predicted. New international subscribers, meanwhile, totaled 1.5 million, compared with the 2 million that had been forecast.

The company acknowledged in its letter to shareholders that while Netflix is growing, it’s “not as fast as we would like or have been.”

Investors have been anxious over the slowdown. Netflix stock is down 14% for the year, and shares for the company are down more than a quarter since December’s record.

Subscriber growth continues to be a key metric of success for Netflix, particularly as its business matures in the U.S. and as it expands globally.

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Netflix is available in 190 countries, including South Korea, India and Russia, and has over 83 million members worldwide. But with just over 47 million users in the U.S., the company has some work to do in its quest to procure between 60 million and 90 million domestic customers.  Netflix faces more competition from Amazon Prime, Hulu and other emerging platforms. 

Higher prices may also have stalled growth. This last quarter Netflix implemented higher prices for its standard two-screen service, from $7.99 per month to $9.99 per month. Customers who had signed on with Netflix before May 2014 were exempted, but only until October of this year. Eventually, all customers will be subjected to the increased rate.

Netflix said that membership turnover increased slightly during the quarter, probably because of confusion over news coverage of price changes for veteran members. Some members, Netflix executives said, perceived the news as an impending new price increase rather than the completion of two years of grandfathering.

“People don’t like price increases, we know that,” Netflix Chief Executive Reed Hastings said during a call with investors. “It’s a necessary phase for us to get through. With the increased revenue, we’re continuing to invest in better and better content. That’s what makes us feel very strong and positive about the long term and that this is a short-term phenomenon.”

Netflix said it expects to add 2 million subscribers internationally and 300,000 in the U.S. for the third quarter, acknowledging some impact from the Olympics.

In advance of reporting its second-quarter results, the company announced that CBS’ upcoming “Star Trek” series will stream exclusively on Netflix in 188 countries outside the U.S. and Canada.

The new episodes of the series, which is set to roll out in January, will debut globally within 24 hours after they appear domestically on the online streaming service CBS All Access.

Under the deal, Netflix will also have all 727 episodes of previous “Star Trek” series such as “Star Trek: The Original Series,” “Star Trek: The Next Generation,” “Star Trek: Deep Space Nine,” “Star Trek: Voyager,” and “Star Trek: Enterprise.”

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Times staff writer Stephen Battaglio contributed to this report.

yvonne.villarreal@latimes.com

Twitter: @villarrealy

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UPDATES:

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4:25 p.m.: This article was updated with additional details. 

This article was originally published at 2:25 p.m.


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