It’s easy being a market leader when there’s no competition
But with Disney, HBO, and others launching or growing their streaming services, Netflix is feeling the hit. The video streaming company lost subscribers for the first time in a decade according to its Q2 earnings, filed last Wednesday. But the bad news doesn’t stop there. The company also missed its subscriber growth target by a significant amount, gaining only 2.7 million new subs compared to the 5 million forecasted. Due to all of this, Q2 earnings led to an immediate 12.2% price drop and is now 15% down at press time.
The video streaming company lost subscribers for the first time in a decade
What happened?
A lot of factors contributed to the fall. According to Netflix’s comments during their Q2 earnings call, the subscriber miss was due to a simple miscalculation. And as Netflix put it, the difficulty of accurately forecasting growth numbers. On the other hand, the earnings call didn’t mention the loss of subscribers due to rival streaming companies - popular shows like The Office and Friends will leave Netflix this year and the next, dulling reasons to resubscribe for some viewers. It’s two biggest markets, the US and the UK, also saw price increases for the service in Q2, further depressing that quarter’s numbers.
But Netflix isn’t dead yet
Netflix execs on the earnings call pointed out that even with US growth lags, the international market is still ripe for expansion. With a particular focus being paid to India and Scandinavia. Their massive content spree hasn’t slowed down either - with so many popular staples being reclaimed, Netflix is pushing harder than ever for original content, and is expected to hit $15 billion in spending this year.
Netflix is pushing harder than ever for original content
What about the future?
Q3 seems to be on the right track, at least, with hit shows like the third season of Stranger Things. But Q2 earnings have brought along a lawsuit from shareholders, alleging that the missed subscriber growth was ‘misleadingly represented to investors’. On the other hand, Q1 saw 9.7 million new subscribers, and the spring season has traditionally been a weak one, with content offerings in Q3 and Q4 significantly more appealing to viewers.
Q2 earnings have brought along a lawsuit from shareholders
What We Think
Doom and gloom are always trendy stories, and Netflix is indeed facing significantly higher competition than before, especially with losing some of their most popular shows. Disney, ABC, TimeWarner, and Apple are all going strong into the streaming game. But Netflix still has tons of popular shows coming up, and their focus on productions for local markets, like India and other countries, gives them a leg up on other companies, whose shows have traditionally been focused on the US market and US pop culture. If Netflix can capitalize on that international growth, then it’ll be in a good place for a while to come. But if it misses its Q3 guidance as well, then Netflix may well be in real trouble.
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