Netflix shares fall 6% over subscriber growth worries after Covid-19 lockdowns

The world’s largest paid streaming service added just 2.2 million new subscribers in the third quarter. File image

Shares in Netflix tumbled after missing Wall Street’s estimates for subscribers, renewing doubts about its ability to maintain growth after the pandemic lockdowns and competition intensifies.

The world’s largest paid streaming service added just 2.2 million new subscribers in the third quarter, it said. That was well short of the 3.32 million predicted by analysts, as well as the company’s own more conservative projection. 

Netflix also predicted that it will sign up 6 million new subscribers this period, below the 6.54 million Wall Street estimate.

Netflix shares fell as much as 6% at one stage in New York trading today. The stock is still up 78% in the past year, giving the company a market value of $231.7bn. 

Netflix added 25.9 million customers in the first half of the year, its strongest start ever. Yet throughout the pandemic, the company has warned that the subscriber boom wouldn’t last - and in fact, that its surge in new customers could suppress growth in the future.

“We expected and knew there would be some level of slowdown,” chief financial officer Spencer Neumann said during a video discussion after the results were released. But predicting subscriber growth in such a climate has proved trickier than ever. While Netflix’s forecasts for the second quarter proved too cautious, its outlook for the third quarter was too rosy.

Many viewers -- especially in Europe and Asia -- have returned to something closer to normal day-to-day life, reducing the amount of time they can spend on Netflix binges. 

“It’s the sign of a maturing business,” said Jim Nail, an analyst at Forrester Research. “Infinite growth can’t go on forever,” he said.

It was Netflix’s weakest third-quarter gain since 2015, back when the company wasn’t yet operating in most of the world. In its letter to investors, management blamed a “pull-forward” effect: Rapid growth in the first half of the year stole from results in more recent months. 

The streaming service also warned investors that it would see slower growth in the quarters ahead. 

Bloomberg