By Joe Flint and Micah Maidenberg
Netflix Inc. said subscriber growth slowed in the third quarter,
highlighting the fresh challenges the company faces from
competitors ramping up their own streaming services as the
coronavirus pandemic continues to disrupt the entertainment
Netflix on Tuesday reported that it added 2.2 million
subscribers in the quarter on a net basis, short of its forecast in
July of 2.5 million new subscriptions for the period. The slowdown
comes after two quarters of much-larger-than-expected growth,
during which the streaming service added nearly 26 million net
subscribers -- almost as many as for the entirety of 2019.
"As we expected, growth has slowed," the company said in a
letter to shareholders.
Netflix shares fell 6.4% in after-hours trading.
Profit rose to $790 million, or $1.74 a share, from $665
million, or $1.47 a share, the year earlier. Analysts had expected
$2.13 a share, according to FactSet.
The streaming giant's ability to reel in subscribers during the
first half of the year marked it as one of the companies that
benefited from the pandemic. Consumers moved to purchase Netflix
subscriptions as Covid-19 initially spread and officials locked
down economies, resulting in millions of people spending more time
at home. The suspension of professional sports leagues,
cancellation of events like concerts and closure of movie theaters
earlier this year reduced competition.
Executives at the Los Gatos, Calif.-based company previously
warned that growth had been pulled forward amid the pandemic and
said they expected subscription increases to lessen during the
second half of 2020. Meanwhile, sports have resumed, more people
have been traveling and cinemas have reopened.
Netflix shares fell 5.4% in after-hours trading.
The company faces heightened competition from other media
companies that have also started streaming television shows, movies
and other content. Earlier this month, Walt Disney Co. said it
would reorganize operations to focus on streaming initiatives,
which include Disney+. AT&T Inc.'s WarnerMedia is in the midst
of a similar restructuring to focus on the new HBO Max streaming
platform and Comcast Corp.'s NBCUniversal is realigning its
entertainment operations to give priority to its new Peacock
Netflix is in the midst of setting up a new leadership team on
its television content side. Cindy Holland, the original
programming executive who played a key role in developing many of
the streamer's most successful shows including "Orange is the New
Black" and "Stranger Things," left last month after Bela Bajaria,
who oversaw international and unscripted programming was promoted
to head of global television.
Similar to previous quarters, Netflix reported stronger gains in
many markets overseas than in the U.S. and Canada. For the latest
quarter, it said it added one million subscribers in Asia, 760,000
in the region including Europe and the Middle East and 260,000 in
In North America, the company gained 180,000 additional
subscribers for the third quarter, down compared with the gain of
more than 2.9 million in the second quarter.
The company reported revenue of $6.44 billion, up from $5.25
billion a year earlier. Analysts forecast $6.39 billion in revenue
for the latest quarter.
For the fourth quarter, Netflix expects to add six million
subscribers, down 31% from the 8.8 million it added in the same
period last year. It also anticipates the first six months of 2021
to be down. The continued precariousness surrounding the
coronavirus makes any projection uncertain, the company said. It is
hoping that in later 2021 its growth will return to pre-pandemic
Even with the pandemic, Netflix is still forecasting that it
will pass 200 million subscribers world-wide this year.
Netflix has indicated it is in no danger of running out of
content despite the complications that Covid-19 has created when it
comes to producing shows, forcing many to make adjustments. In an
interview last month, Chairman and Co-Chief Executive Reed Hastings
said the company would have more original content in 2021 than it
has this year.
In its letter to shareholders, the company said it is "confident
that we'll have an exciting range of programming for our members,
particularly relative to other entertainment service options."
Because Netflix makes much of its programming far in advance of
when it is released, it has a large backlog of content. Newer
streaming rivals are starting from scratch and don't have the full
cupboards of original content that Netflix does.
Netflix has developed a quick trigger finger when it comes to
canceling shows. Just this week it grounded "Away," an ambitious
drama set in outer space starring Oscar winner Hilary Swank, after
one season. The drama "Teenage Bountyhunters," which premiered just
a few months ago, has also been canceled.
The company continues to spend heavily on films. Releases
planned for the fourth quarter include "Hillbilly Elegy," based on
J.D. Vance's bestselling memoir and starring Amy Adams and Glenn
Close, with Ron Howard directing. The company also plans to release
"Prom" from Ryan Murphy, starring Meryl Streep, Nicole Kidman and
Netflix also appeared to be unscathed by the controversy over
the movie "Cuties," a film about preteen French girls growing up
too fast in the age of social media. The movie was criticized in
part for a marketing campaign that showcased the young female
characters in provocative poses. Netflix acknowledged the
promotional efforts behind the movie distorted the message of the
Write to Joe Flint at firstname.lastname@example.org and Micah Maidenberg at
(END) Dow Jones Newswires
October 20, 2020 18:16 ET (22:16 GMT)
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