Business

Netflix falls short on new subscribers as pandemic boost fizzles

In Latin America, Netflix added 256 thousand new subscribers during Q3, versus 1.49 million in the year-prior period

Netflix original movie "Enola Holmes", released during Q3. Photo: Reuters
  • Revenue rose 22.7% to $6.44 billion in the third quarter, edging past estimates of $6.38 billion;
  • Net income rose to $790 million, or $1.74 per share, in the quarter from $665.2 million, or $1.47 per share, a year earlier;
  • The company added 2.2 million paid subscribers globally during the quarter that ended Sept. 30

Netflix on Tuesday posted its weakest subscriber gains in four years as streaming competition increased, pandemic restrictions eased and live sports returned to television.

The company added 2.2 million paid subscribers globally during the quarter that ended Sept. 30, missing Wall Street’s target of 3.4 million and its own forecast.

Earnings per share also landed below analyst expectations at $1.74. The consensus forecast was $2.14, according to IBES data from Refinitiv.

Shares of Netflix, one of the biggest gainers this year as people stayed home amid the pandemic, dropped nearly 6% to $494 in after-hours trading on Tuesday.

“Domestic subscribers were nearly flat, which highlights Netflix’s saturation in the U.S.,” said Ross Benes, analyst with eMarketer. With domestic additions slowing, revenue growth will likely come from price increases, he said.

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In Latin America, Netflix revenues reached $789 million for the period. The region added 256 thousand new subscribers during Q3, versus 1.49 million in the year-prior period. 

Reed Hastings‘ firm said it has returned to production not just in Europe and Asia but also in Latin America. “We’ve restarted production on some of our biggest titles including season four of Stranger Things, action film Red Notice (starring Dwayne Johnson, Gal Gadot and Ryan Reynolds) and The Witcher season two,” stated Netflix.

The company reported a blockbuster quarter at the start of the worldwide coronavirus pandemic, adding 15.8 million paying customers from January through March.

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. Netflix forecast in the fourth quarter it would bring in 6 million new subscribers around the globe, short of the 6.51 million that analysts expected.

The streaming video pioneer is trying to win new customers and fend off competition as viewers embrace online entertainment. During the third quarter, Netflix released Emily in Paris, Enola Holmes, and The Devil All the Time.

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Netflix acknowledged that competition was increasing as studios across Hollywood from Walt Disney to AT&T’s WarnerMedia have restructured to compete more directly for video subscribers.

“Competition for consumers’ time and engagement remains vibrant,” Netflix said in a letter to shareholders.

In recent months, major sports resumed play, and nascent streaming services, including AT&T’s HBO Max and Comcast’s Peacock, offered audiences new options.

Netflix said its results reflected the fact that it saw such a big surge in customers early in the year.

“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.

Netflix officials noted the company had pulled in more subscribers in the first nine months of 2020 than in all of 2019. It ended the third quarter with 195.2 million global streaming customers.

“Next time we get together, we should be over 200 million members, completing a year of 34 million (additions),” an annual record, Co-Chief Executive Reed Hastings said in an analyst interview.

The company also said it expected to complete shooting over 150 productions by the end of the year and that it would release more original programming in each quarter of 2021 compared with 2020.