CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Netflix share price falls 12% on underwhelming Q2 results

Weak subscriber growth and the threat of increased competition are likely to have contributed to Netflix's 12% share price decline in after-hours trade.

Netflix (NFLX) Source: Bloomberg

The Netflix Inc (All Sessions) share price collapsed as much as 12.29% in after-hours trade following the release of disappointing second quarter results.

The company reported underwhelming subscriber growth, while downplaying the impact of increased competition in the streaming market.

Here’s everything you need to know about Netflix’s Q2 results:

Subscriber growth lags behind expectations

Arguably Netflix’s most important metric – subscriber growth – undershot investor expectations and company forecasts by a long margin.

Paid memberships increased by just 2.7 million during 2019’s second quarter.

Not only was this figure significantly less than the 5.5 million subscribers added in the corresponding 2018 quarter, but these figures were also 46% below the company’s own Q2 2019 paid subscriber count estimates.

What this miss really means

The company talked down the miss in subscriber growth and were quick to point out that both average streaming paid memberships increased 24% and the average revenue per user also rose 3%, year-over-year.

Off the back of these disappointing results, Netflix was also keen to remind investors that ‘we still only earn about 10% of consumers’ television time, and less of their mobile screen time, so we have much room for growth.’

Investors remain sceptical

Even considering the above comments on growth, Netflix’s share price still dropped sharply in after-hours trade.

Speaking of lower subscriber counts, Netflix itself said that:

‘We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2.’

On the face of it, this is a fair assessment given that many of Netflix’s largest potential competitors have yet to or are in the process of entering the streaming market.

However, this claim may have also potentially left investors asking a more pertinent question; that is: if Netflix’s weak Q2 subscriber growth was unrelated to increased competition, how much could subscriber growth suffer if the competitive landscape does change?

Indeed, as the company itself pointed out, over the coming 12-months Apple, Disney, WarnerMedia and NBCU are all set to enter the streaming space with their own offerings.

This adds to the already crowded space that counts Hulu, Amazon Prime, ROKU, and of course Netflix as key players.

Moreover, with Netflix soon to lose the streaming rights to viewer favourites Friends and The Office, it will be interesting to see how effective the company’s original content is at driving viewers to the platform in the future.

Highlights of the Q2 release

Though Netflix Inc (All Sessions) under delivered on subscriber growth, the Q2 release wasn’t all negative.

Netflix posted revenue of $4.9 billion in the second quarter – a 26% increase year-over-year. The company is now forecasting Q3 revenue of $5.25 billion and net income of $470 million.

In addition to strong revenue growth, the company also expects paid subscribers to hit 7 million in the third quarter, noting that ‘while our US paid membership was essentially flat in Q2, we expect it to return to more typical growth in Q3 and are seeing that in these early weeks of Q3.’

Investors will certainly be keen to see an uptick in this key metric given the disappointing results from yesterday’s Q2 release.

The company also flagged a new partnership with telecom giant AT&T in its Q2 release. As part of this partnership Netflix will see its services integrated into AT&T’s latest set-top box.

Closing thoughts

Prior to yesterday’s Q2 release, Netflix Inc (All Sessions) traded at a lofty price to earnings ratio of 130, compared to the NASDAQ’s more modest price to earnings ratio of 21.47.

With such high expectations already factored into the price, and with such a large miss in one of the company’s key growth metrics – Netflix’s 12% share price decline overnight is hardly a surprising one.

Even still, year-to-date Netflix’s stock has gained 19.4%.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Be ready to act on ECB opportunities

Learn how the ECB’s monetary policy announcements affect interest rates and price stability ahead of its next meeting in September 2020.

  • How might the next meeting affect the markets?
  • What are the key rate decisions to watch?
  • Why is the Governing Council announcement important for traders?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.