Shares in Netflix plunged on weak subscriber growth

Shares in Netflix plunged 13% to $85.90 in after-hours trading in New York after the company announced lacklustre subscriber growth because of higher prices for existing users.

The streaming giant only added 1.68 million users in the three months to June – much lower than its forecast of 2.5 million new users – about 30% below estimates, and nearly 50% less than the number it gained in the same quarter of last year.

“We are growing, but not as fast as we would like or have been,” CEO Reed Hastings said in a letter to shareholders.

Higher charges for existing users also contributed to an unexpected rise in subscriber cancellations.

“We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” the company said in a statement, adding that the churn “is modest and conforms to our expectations.”
Revenue also missed expectations, at $1.96bn for the second quarter – lower than expectations of $2.1bn.

Netflix announced a price hike 2014, but promised existing members at the time that they could keep their old rate for two more years. Earlier this year many users received a warning that their prices were about to go up.

“While un-grandfathering and associated media coverage may moderate near-term membership growth, we believe that un-grandfathering will provide us with more revenue to invest in our content to satisfy membership, thus driving long-term growth,” the company said.