Shares of Netflix (Netflix News, Stock Quote, Chart NASDAQ:NFLX) were down sharply on Thursday as the market reacted to a rare quarterly subscriber loss as well as a substantial miss on its international subscriber additions. A portent of doom for the streaming service company?
Hardly, says, Tom Rogers, who claims that stalling subscriber numbers are more of a problem for Netflix’s streaming service competitors like Disney and HBO.
Netflix’s second quarter featured revenue that came in-line with analysts’ estimates at $4.92 billion compared to the consensus $4.93 billion, while the company even managed a beat on EPS, generating 60 cents per share versus the Street’s projection of 56 cents per share. (All figures in US dollars.)
But it was the domestic paid subscribers category that proved the shocker, registering a loss of 126,000 compared to an expected gain of 352,000. International paid subscriber additions also grew by 2.83 million, which was much lower than the projected 4.81 million.
For an explanation, Netflix management pointed to a weaker content slate over the quarter along with the relative strength of its Q1, a “pull-forward” effect that was larger than expected.
But while many see Netflix’s third quarter as likely coming in stronger, due in part to eyeballs watching one of its flagship programs in “Stranger Things,” the nudge is there towards wondering whether heating up competition in the streaming space may be cramping Netflix’s style.
Rogers, current executive chairman of WinView, spoke to CNBC Thursday, saying that Netflix’s Q2 is a blip rather than a major problem for the company.
“Is this a management, credibility and forecasting issue or is this a fundamental business model issue? I think it’s the former,” says Rogers.
“They put through a price increase, and people realized, in a not inflationary environment putting through 15 to 18 per cent price increases and having larger churn than they typically have —and they’re very low on the churn scale compared to other services- but internationally also, in Western Europe on their standard and premium price packages they’re now higher priced in the Euro than in the United States. That’s a big deal,” he said.
Instead, Rogers sees the hiccup in subscriber adds as potentially more telling for competing services, who may be left picking at the scraps after Netflix has had its share.
“The quarterly result is not great news for Netflix, obviously, but I think it’s much worse news for everybody else. It means that there’s a segment here that’s going to be price-resistant and if you want to be service #2 or service #3 or #4, there’s obviously going to be a lot more headwinds there than people may have originally thought,” Rogers said.
“If it’s about programming, Netflix is spending $15 billion on original programming, dwarfing what everybody else is spending combined —so, if it is about programming, everybody else is going to have a tougher time with introducing new hits all the time than Netflix likely is,” he said.
Editor’s Disclaimer: Yes, we know what “Netflix and Chill” actually means…