Netflix Misses Big on Q2 Subscriber Growth, Stock Drops 11 Percent

Reed Hastings co-founder and chief executive of Netflix

Following the announcement, the stock was down about 14% at $346.00 in Monday's after-hours session.

The news of just 5.2 million total subscriber adds was especially pointed for Wall Street given Netflix's addition of 7.4 million in the first quarter, well ahead of the 6.5 million projected then. The company added 700,000 domestic subscribers during Q2, along with 4.5 million overseas, missing company and analyst estimates on both fronts. Revenue, meanwhile, totaled $3.91 billion, also falling short of analyst expectations.

With all this, the stock is tanking.

In the second quarter past year, Netflix posted $2.79 billion in sales.

Analyst Daniel Ives at GB Insights was quoted by The Guardian as describing the subscriber shortfall as a "near-term gut punch" to the Netflix bull thesis.

Commenting on the reaction of shareholders Eric Schiffer, chief executive of private equity firm Patriarch, said: "Investors are devastated by Netflix's Q2 projection that went down in dramatic flames".

Bottom line: We're used to hearing reports about how Netflix continues to grow and is the most popular TV viewing platform, so its latest earnings report is something of a surprise.

All told, Netflix over the last three months added 670,000 new subscribers in the United States and 4.47 million new subscribers overseas.

The California-based company added 670,000 net subscribers in the US, far below the 1.19 million net additions expected by analysts polled by Thomson Reuters. Revenue rose 5.6 percent, to $3.91 billion. Earnings per share of $0.85 topped estimates of $0.79, but revenue of $3.91 billion fell short of the expected $3.94 billion.

It is a crucial measurement for investors as subscriptions are key to funding the company's investment in its own TV shows and movies, which is expected to hit $8bn (£6bn) this year alone.

Going forward, "We anticipate more competition from the combined AT&T/WarnerMedia, from the combined Fox/Disney or Fox/Comcast as well as from global players like Germany's ProSieben and Salto in France", the company said in the investor letter. The world's biggest tech company, Apple, also plans to launch a streaming service that would compete with Netflix.

At the same time, Netflix faces growing competition. "Our strategy is to simply keep improving, as we've been doing every year in the past".

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