Netflix today reported its second quarter earnings for 2019, and has subsequently dropped over 10 percent in after-hours trading. Netflix reported global net new subscribers of 2.7 million, far below its guidance of 5 million. This comes as Netflix will soon face increased competition from the likes of Apple, HBO, and Disney.
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As detailed by CNBC, Netflix reported higher earnings per share than analysts anticipated at 60 cents versus 56 cents. Revenue was slightly below $4.93 billion estimates, with Netflix reporting $4.93 billion.
Netflix’s subscriber count in the United States fell by 126,000, which is far worse than analyst expectations of the company adding 352,000 new subscribers. On an international basis, Netflix added 2.83 million subscribers, compared to expectations of 4.81 million.
In Netflix’s letter to shareholders, CEO Reed Hastings said that Netflix’s subscriber loss was higher in areas where it was forced to increase prices during the quarter. He added that Netflix doesn’t believe that “competition was a factor since there wasn’t a material change in the competitive landscape during Q2.”
As for the upcoming loss of Friends and The Office, Hastings says that this will free up Netflix’s budget for new original content. This is the despite the fact that both shows are the two most watched pieces of content on Netflix.
Various reports have suggested that Netflix might adopt an advertising model in an effort to keep mostly costs lower for subscribers. Hastings said those reports are completely false:
We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.
Hastings also addressed the forthcoming competition from Apple, Disney, and others. He explained that in the United States, Netflix still only earns around 10 percent of consumers’ television time, giving it room to grow:
Over the next 12 months, Disney, Apple, WarnerMedia, NBCU and others are joining Hulu, Amazon, BBC, Hotstar, YouTube, Netflix, and many others in offering streaming entertainment. The competition for winning consumers’ relaxation time is fierce for all companies and great for consumers. In the US, our most developed market, we still only earn about 10% of consumers’ television time, and less of their mobile screen time, so we have much room for growth.
Netflix has long dismissed the looming competition from the likes of Apple and Disney. This quarter’s loss in subscribers marks a first for Netflix since 2011, but a lot of questions remain about how the company will compete in the growingly crowded streaming media space.
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