Shares of Netflix fell Thursday, a day after the Net TV leader announced that its U.S. subscriber growth from July to September fell short of internal expectations.
Netflix (NFLX) closed down more than 8% to $101.09, as investors became skiddish about subscriber growth concerns and competition from other streaming providers.
Overall, the streaming video giant added 3.62 million new subscribers worldwide in the third quarter, above its own forecast of 3.55 million, the company announced Wednesday. That brings Netflix’s total to more than 69 million.
However, U.S. subscriber growth of 880,000 fell short of the 1.15 million expected to join the service in Q3. Meanwhile, international growth of 2.74 million surpassed a 2.4 million forecast. Netflix said that U.S. subscriber churn increased because many customers got new chip-based credit and debit cards, but did not update their accounts.
Netflix chief financial officer David Wells said that the ongoing transition to chip cards is also reflected in the company’s fourth quarter forecast of 1.65 million new U.S. subscribers. “We don’t think, though, that it really affects our addressable market size of 60 million to 90 million (in the U.S.),” he said in a conference call with analysts and press Wednesday.
Analysts differed in how they responded to Netflix’s performance. “We think it is far more plausible that a combination of price increase and saturation drove churn,” wrote Wedbush Equity Research analysts in a report Thursday. They reiterated a $40 share price target. “Investors continue to overlook increasing cash burn and relatively modest net income.”
Even though U.S. subscriber growth may begin to slow, Nomura analyst Anthony DiClemente said in a report that “we believe Netflix shares deserve a premium given the company’s position as the most powerful global distributor of professional media content. We maintain our Buy rating and $125 target price and remain confident in long-term earnings power, driven by upside to long-term international margins.”
ITG senior analyst Steven Weinstein took the middle ground saying that Netflix may have encountered some unusual factors. “I think it is too early to say that something has changed,” he said in an email exchange.
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