Netflix reported disappointing subscriber growth in the US and its profit fell due to higher costs for content and expansion. The company announced its third-quarter results this week, which showed an increase of 880,000 subscribers in the US, below the 1.15 million subscribers Netflix predicted in July. Yet in overseas territories as a whole, the company added 2.74 million users, above Netflix’s 2.4 million forecast. Netflix reported operating income of $74 million, compared to prior year of $110 million, and in the wake of the announcement Netflix’s shares fell by a reported 15 per cent before pulling back from the decline to trade down 2.4 per cent.
The growth of Netflix has been explosive, with the service launching in Japan this year as well as announcements of continued expansion in Europe more recently. Netflix blamed its over-forecast for subscriber numbers in the US on higher-than-expected involuntary churn (inability to collect) being driven by the payment system’s transition to chip-based credit and debit cards.
The company has long placed a focus on content, and price hikes for the service in the US last week would, the company said, “improve our ability to acquire and offer high quality content”. Netflix has been investing more in original series, and highlighted Narcos as evidence of this strategy’s success. The series has a Brazilian director and star, US and Latin American cast, was shot in Colombia, and and gained substantial viewing across all territories. Time will tell how price increases will affect subscriber numbers in the US, although Netflix remained optimistic, reminding shareholders how in August it raised its HD two-screen monthly price plan in Europe by €1 without negatively impacting growth.
Netflix now has over 69 million members around the world and expects to end 2015 with 74 million. It expects international contribution losses to grow sequentially in the fourth quarter due to launches in Spain, Italy and Portugal. Plans to extend the service to South Korea, Hong Kong, Taiwan and Singapore in early 2016 seem to remain in the pipeline, and perhaps for this reason the company expects to break even in 2016, and only deliver profits in the following months.
