Netflix has been the go-to streaming service for years now, but it looks like the company is taking a bit of a financial hit now.
The company’s overall value sunk by $17 billion in a single day due to lower subscriber numbers than they projected.
According to the Hollywood Reporter, the streaming giant forecast adding 5 million subscribers this quarter but only actually received 2.7 million new users.
The weak subscription numbers are particularly concerning considering they come prior to competition coming from Disney and WarnerMedia streaming services.
Stock trades were five times higher than daily averages on Thursday for the company, sinking 10 percent as analysts took in the news. This is also the first time in the company’s streaming service history where they lost U.S. subscribers meaning their gains were international.
“None of that affected the second quarter, but investors wonder what the effect of large content players in the market, pulling some content from Netflix, will be,” said Macquarie Capital analyst Tim Nollen.
Another analyst, Michael Nathanson of MoffettNathanson says “While we have never doubted the quality of the Netflix product offering, we have recently had a hard time finding comfort in Netflix’s equity value.”
Nathanson further noted the downturn looks particularly bad considering “U.S. subscriber adds turned negative on the back of $1 to $2 price hikes and an underwhelming content slate.”
In a letter to shareholders, Netflix acknowledged the price increase may have been a cause.
“Our missed forecast was across all regions, but slightly more so in regions with price increases,” the letter reads. “We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region).”
Not everyone is feeling as negatively about the stock drop though. Guggenheim Securities analyst Michael Morris focused on the company’s long-term strategy
“We remain positive on the company’s global, multi-year outlook given comments around the strength of scalable, globalized content and improving profitability,” he says. “We believe bulls remain focused on long-term subscriber penetration regardless of quarterly bear-focused subscriber fluctuations.”
Numerous analysts are projecting Netflix are having trouble as competition rears its head and will need to reconsider how they acquire content.
Michael Pachter of Wedbush, a longtime bear on Netflix, wrote that he remains “skeptical that Netflix can turn free-cash flow positive in the next five years.” Pachter further noted he expects Netflix “to have difficulty meaningfully growing its domestic subscriber base.”
What do you think of the huge financial hit Netflix took? Let us know in the comments below.