Netflix Badly Misses Q2 Targets, Reports 46% Fewer Paid Net Adds Than Forecast

Netflix significantly underperformed in Q2 against its paid net subscriber addition targets, saying in a shareholder letter Wednesday the damage was felt across all global regions. It finished the quarter with only 2.7 million net subscriber adds, 46 percent fewer than the 5 million it forecast in April. It had projecte 300,000 net subscriber adds for the U.S., 4.7 million internationally, but had 130,000 net subscriber losses in the U.S., and only 2.83 million net sub adds overseas. The worst performance was in regions where Netflix imposed price increases, said the company. “We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.” The competition for “winning consumers’ relaxation time is fierce for all companies and great for consumers,” said Netflix. Competition will grow more intense in the next 12 months when new services launch from Disney, WarnerMedia and others, it said. “The innovation of streaming services is also drawing consumers to shift more and more from linear television to streaming entertainment.” In the U.S., “we still only earn about 10% of consumers’ television time, and less of their mobile screen time, so we have much room for growth,” said the company. Ad-free “remains a deep part of our brand proposition,” it said. “When you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.” Minutes before the shareholder-letter disclosures, Netflix shares closed 10 percent lower at $362.44. The stock was trending 12.5 percent lower after hours to $317.19 at 5:15 p.m. EDT.