Netflix has released its earnings report, which revealed the company has fallen short of its subscribers target for the first quarter of 2017. The streaming giant reported 98.75 million total subscribers, a net increase of 4.95 million from the previous year, but below analysts’ expectations. Analysts polled by Thomson Reuters had expected 98.9 million subscribers overall.
“Due to content moving from Q1 to Q2, we had higher operating margins in Q1 at 9.7pc than our plan for the year,” said CEO Reed Hastings in a letter to shareholders. “We forecast operating margin at 4.4pc in Q2, placing us on track to reach our 7pc target for the full year.”
The California-based company pushed back the new season of House of Cards, one of its most popular shows, to the second quarter of the year and they believe this has had a negative impact on subscriber growth.
However, Netflix is is forecasting 3.2 million more subscribers in the second quarter, well ahead of analysts’ estimates of 2.4 million. This has seen the company's shares rise 1.4% in post-market trading, after initially falling about 1%.
"The U.S. market is continuing to grow nicely, even if every incremental 10 million subscribers is harder than the last 10 million," Reed Hastings said on a video posted to YouTube. When quizzed about Amazon, it’s main competitor in the streaming market, he had this to say:
“They’re doing great programming, and they’ll continue to do that, but I’m not sure it will affect us very much. Because the market is just so vast. You know, think about it, when you watch a show from Netflix and you get addicted to it, you stay up late at night. You really — we’re competing with sleep, on the margin. And so, it’s a very large pool of time. And a way to see that numerically is that we’re a competitor to HBO, and yet over 10 years we’ve grown to 50 million, and they’ve continued modestly growing. They haven’t shrunk. And so if you think about it as, we’re not really affecting them, the [question] is why — and that’s because we’re like two drops of water in the ocean, of both time and spending for people. And so Amazon could do great work, and it would be very hard for it to directly affect us. It’s just — home entertainment is not a zero-sum game. And again, HBO’s success, despite our tremendous success, is a good way to illustrate that.”
Hastings also revealed that Netflix is on the verge of surpassing 100 million global subscribers, and could reach the number as soon as this weekend. After this admission, some commentators have accused Netflix of lowballing its subscriber numbers.
Scott Devitt of Stifel broke down the thinking behind this for CNBC:
"Netflix ended 1Q:17 with 98.75mm subscribers and noted it expects to eclipse the 100mm subscriber mark this weekend, giving the company around 40% of its expected quarterly net adds in just three weeks."
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