Netflix released its Q2 financial results today revealing it had for the first time failed to increase its subscription numbers in America, losing around 130,000 net US subscribers in the quarter. The period coincided with a US$2 per month price hike, suggesting the streaming giant may have found its tipping point.
Revenue for the quarter reached US$4.9 billion, a 26 per cent year-on-year increase. But net income fell to US$270 million from US$384 million a year earlier. Netflix shares sunk more than 10 per cent following the results.
Subscription growth rates were down in all regions, according to Netflix executives, who downplayed the drops as mainly seasonality and content timing, arguing price hikes were a secondary factor.
A letter to shareholders also dismissed rising competition — Apple and Disney are bolstering their own streaming services — as not yet creating a “material change in the competitive landscape”.
Globally, subscriptions grew by 2.7 million, however, the streaming giant had expected the number to be 5 million, attributing the gap primarily to a Q2 content slate that failed to drive subscription growth, despite some standouts including the record breaking Stranger Things season 3. Executives conceded price hikes in certain regions did cause higher churn but said content and seasonality was the “primary story”.
Netflix is predicting it will recover next quarter and grow subscriptions by 7 million, pinning some of that hope on a new lower tier offer for the Indian market.
Subscription growth down ‘across the board’
Netflix CFO, Spencer Newman, downplayed the quarterly subscriber problems on an investor call, saying annual growth was still strong and early Q3 numbers pointed to a recovery.
“If we look at the trailing 12 months we grew our member base by over 27 million members,” Newman said. “If you take that forward to where we think we’ll be at the end of Q3 we think we’ll be on a trailing 12 month basis [of] over 28 million members.
“So we’re really playing for the sustained increase in growth in our membership over time and there’ll be some quarter by quarter choppiness along the way based on seasonality, content slate and so forth.”
Newman said subscription growth rates were down “across the board” for Q2 but positive early Q3 rates left him “encouraged” with the overall trends.