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

Netflix missed its own estimates — as well as Wall Street’s projections — on subscriber growth by 1 million new accounts when the streaming giant reported its second-quarter financial results on Monday afternoon, sending its stock price tumbling more than 10 percent in the process.

For the three months ending on June 30, Netflix reported revenue of $3.9 billion and earnings of 85 cents a share — touching analyst estimates of $3.94 billion in revenue and beating projections of $0.79 per share. The Los Gatos, California-based company increased streaming revenue 43 percent year-over-year.

But subscriber growth is what Wall Street cares most about. Netflix reported 5.2 million new subscribers — which was well short of its projected 6.2 million new customers. Coming off its best back-to-back quarters for total subscriber growth in its history, Netflix fell short of subscriber estimates for the first time since Q1 2017.

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Netflix fell 1M subscribers short of its Q2 estimate (via Netflix)

Shares of Netflix were down 14 percent in after-hours trading to $344 per share, immediately after the company reported its earnings.

With more than 56 million domestic subscribers, or about 1 out of every 6 people in the States with an account, Netflix had already been heading towards a saturation point at home. The company added 700,000 domestic subscribers during Q2, along with 4.5 million abroad, missing company and analyst estimates on both fronts. Netflix now has 130 million total subscribers, with more than half coming from outside the U.S.

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Netflix also shared guidance of 5 million new subscriptions for Q3, which came in below analyst estimates of about 6 million.

Netflix raised $1.9 billion in debt during the quarter, and now holds a long-term debt balance of $8.4 billion. The debt is helping finance its breakneck content output — which COO Ted Sarandos has budgeted at about $8 billion for 2018, while The Economist recently estimated it could balloon to $13 billion.

Netflix said it’s “making good progress with our original feature films,” in a letter to its shareholders. Two of its originals — “Set It Up,” starring Lucy Liu and Taye Diggs, and “The Kissing Booth” — have been “watched and loved by tens of millions of Netflix members,” said the company, which is usually reticent to share viewership data.

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And if you’ve noticed more billboards for “Stranger Things” and “The Crown” of late — two shows that helped make Netflix the most-nominated network for the Emmys last week — there’s a good reason. Netflix’s marketing budget increased 92 percent since the same time last year, hitting $526 million for the quarter.

Netflix will post its prerecorded earnings call at 6:00 pm ET.

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