Netflix stock is trading sharply lower after the streaming giant reported a slowdown in new subscribers over the summer, after a huge surge of signups in spring left demand tapped out.
Shares of Netflix dropped as much as 6.54 percent in morning trading on Wednesday, one day after the streamer posted its biggest earnings miss yet and worst quarter in four years.
While Netflix added 28.1 million paying subscribers so far this year, only 2.2 million of them came in the third quarter, compared with analysts’ estimates of 3.4 million.
It followed a huge surge in subscribers during the second quarter, as pandemic lockdown measures went into effect, and Netflix said it believed some of the demand it would normally see over the summer was pulled forward into the spring.
Hillary Swank is seen in the Netflix series Away, which the streaming giant said on Tuesday had been cancelled for a second season. Netflix reported disappointing earnings on Tuesday
A five-day view of Netflix shares shows the sharp drop in price on Wednesday
Netflix estimated that the company would add 2.5 million paid subscribers this quarter, but warned that the pandemic made it difficult to accurately project demand.
During the same quarter last year, Netflix added 6.8 million subscribers.
Looking ahead, Netflix forecast it would bring in 6 million new subscribers around the globe, short of the 6.51 million that analysts expected.
The company led losses in the S&P 500 on Tuesday.
Netflix had warned investors that a sudden surge in new sign-ups would fade in the latter half of the year as COVID-19 restrictions eased.
‘As we expected, growth has slowed,’ the company told its shareholders in a letter.
During the third quarter, Netflix released Emily in Paris, Enola Holmes, and The Devil All the Time.
It also released the popular sci-fi series Away, starring Hillary Swank, but Netflix said on Monday that a second season had been cancelled.
The streaming video pioneer is trying to win new customers and fend off competition as viewers embrace online entertainment.
The pandemic sparked new interest in the service as people around the world were told to stay home, movie theaters went dark and sports leagues canceled live games.
Netflix acknowledged that competition was increasing as studios across Hollywood from Walt Disney Co to AT&T Inc’s WarnerMedia have restructured to compete more directly for video subscribers.
Disney+, which launched at the end of 2019, has amassed more than 60 million subscribers worldwide.
‘Competition for consumers’ time and engagement remains vibrant,’ Netflix said in a letter to shareholders.
Netflix on Monday announced that it added just 2.2 million paid subscribers in the third quarter of 2020 – the company’s worst quarter in four years
In recent months, major sports resumed play and nascent streaming services, including AT&T’s HBO Max and Comcast Corp’s Peacock, offered audiences new options.
Peacock, which has a free and a paid subscription tier, has amassed 15 million subscribers. NBCUniversal says that its goal is to reach between 30 and 35 million active accounts by 2024.
Netflix said its results reflected the fact that it saw such a big surge in customers early in the pandemic.
‘We continue to view quarter-to-quarter fluctuations in paid net adds as not that meaningful in the context of the long run adoption of internet entertainment, which we believe is still early and should provide us with many years of strong future growth as we continue to improve our service,’ the company said.
Revenue rose 22.7 per cent to $6.44billion in the third quarter, edging past estimates of $6.38billion.
Net income rose to $790million, or $1.74 per share, in the quarter from $665.2million, or $1.47 per share, a year earlier.