Netflix admits slump in subscription numbers

16 Oct 2014

Despite adding 1m new subscriptions in the US, video-streaming service Netflix admits it has fallen compared to its original forecast, and turn affected its stock price, which fell 23.4pc.

In terms of the total revenue brought in by the company, its finances have increased somewhat on the third quarter of last year.

Netflix’s total third-quarter revenues amounted to US$1.22bn, compared to US$884m in the year-ago quarter.

The company’s total profits have increased from the third quarter of last year, from US$92m to US$220m.

However, Netflix is now facing a considerable downturn. While its US subscribers are keeping the company profitable for the time being, its heavy investment in the international market has posted losses across the board.

The biggest concern for Netflix is the fact it has, for the first time, not reached its forecasted levels of new customers. Subscriptions in the third quarter of last year hit 1.3m, and this is now down to 1m.

Netflix’s profits for the fourth quarter of this year are also expected to fall by as much as US$55m, which can be attributed to its forecasting a loss of US$95m in its international end of the business.

Reed Hastings, CEO of Netflix

Netflix denies competition is a cause for concern

Speaking of why the company has fallen short in this quarter’s report, CEO Reed Hastings said it can be attributed to one particular factor, its recent price increase.

“As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago. Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets, such as the US,” Hastings said.

However, Hastings denies that increased competition and new players on the market are also a factor.

“Since our per-member viewing and retention in the US are as strong as ever, we don’t think increased competition from piracy, TV Everywhere, Amazon Prime Instant Video, Hulu, etc, is a major factor.”

HBO, in particular, was worthy of a standalone mention by Hastings. He had said three years ago HBO would be its most significant long-term competitor, but argued that this competition is likely to mean they both prosper as consumers move to internet TV.

The company also attempted to explain its significant projected loss in the next quarter internationally as a result of changes to European VAT laws that will come in by January that will see its costs increase.

As a result of these lowered forecasts, the company’s stock today went down by almost a quarter by US$23.4pc.

Netflix on tablet image via Shutterstock

Colm Gorey was a senior journalist with Silicon Republic