Netflix shares plummeted by 22 percent in after-hours trading. The online media giant added a million new members in the US, ending Q3 with a total of 37.22 million members, which is much lower than the 1.37 million net adds that analysts has forecast.
The company announced fourth-quarter guidance with earnings-per-share well below expectations. It expects earnings per share of only $0.44 – Wall Street analysts had anticipated almost double that amount, of $0.84.
Netflix’s Q3 letter to shareholders said:
“In hindsight, we believe that late Q2 and early Q3 the impact of higher prices appeared to be offset for about two months by the large positive reception to Season Two of Orange is the New Black. We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing. The effect of slightly higher prices is factored into our Q4 forecast.”
“We are forecasting Q4 US contribution margin to increase almost 500 basis points on a y/y basis, but to decrease slightly sequentially, as it did last year from Q3 to Q4, due to significant sequential increases in content and marketing expense.”
HBO recently announced that it will be providing its very own internet-only service in 2015, which could grab a large chunk of Netflix’s current market share.
When asked about HBO’s new streaming service Reed Hastings said that “we and HBO have completely different content, so I don’t think it’ll be a significant impact at the consumer level.”
Reed Hastings said that Internet TV is going to be everything in a couple of years, adding that people around the world are moving to internet video.
When asked how could free trial subscriptions missed expectations, David Wells, CFO, said:
“Well there is a number of ways, we just didn’t grow as much as we thought we were going to in terms of bringing folks in, so across a number of markets we were lighter versus our forecast than we expected and you collect the markets together and you get to a point where you miss on the total number but make it on the paid number.”