Are Netflix subscribers stalling out?
The company beat analyst expectations for its first quarter, but investors reacted badly to subscriber growth projections.
By Kim Peterson Apr 23, 2012 1:00PM
Updated 5:40 p.m. ET
Netflix (NFLX) chief Reed Hastings has predicted ambitiously that the company could get as many as 90 million U.S. subscribers.
But that goal is looking increasingly bleak. More competitors are stealing customers, and the company's growth is flattening out.
Netflix shares plunged Monday after the company said subscriber growth would slow. The company met analyst expectations for customers in the first quarter, reporting 23.4 million U.S. subscribers -- a 1.74 million bump from the end of December.But its projections for the second quarter were disappointing.
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The company said its U.S. online users would probably only grow to between 23.6 million and 24.2 million in the current quarter. That's only a net increase of between 200,000 and 800,000. Analysts were expecting a gain of 781,000, Bloomberg reports.
The number of DVD subscribers will likely drop by 740,000 to 1.14 million, to as little as 8.95 million. That's a far larger drop than the 623,000 analysts were expecting.
Netflix shares fell by more than 16% in after-hours trading from the stock's $101.84 close.
Netflix posted a loss for the quarter as its costs have ratcheted up, mainly from expanding its service internationally, but the company beat analyst expectations. Its first-quarter loss came in at $4.58 million, or 8 cents a share, which was less than the loss of 27 cents a share that Wall Street expected. Revenue rose 21% to $869.8 million, which was also better than the $865.5 million analysts expected.
Even though the company is focused on overseas expansion, it must keep growing its U.S. subscribers and fend off threats from Amazon (AMZN), Comcast (CMCSA), Coinstar's (CSTR) Redbox and a number of other deep-pocketed rivals developing video rental and streaming services.
The competition is so intense, in fact, that some analysts are beginning to think Netflix's U.S. numbers are closing in on a plateau. One analyst, Aaron Kessler of Raymond James, thinks U.S. subscribers may stall at 26.8 million this year, Bloomberg reports. An analyst at T. Rowe Price thinks the number could grow to 35 million.
Another analyst, Wedbush's Michael Pachter, said Monday on CNBC that the number of U.S. subscribers will start to drop in the third quarter of this year. He also thinks the company's stock price will drop. Netflix has lost a number of new films, he said, and subscribers will start to notice.
"You just keep looking for something to watch," Pachter said. He predicted that six months from now Netflix's share price will be half of current levels.
Netflix never recovered from its disastrous decision last year to end its $10 monthly combo of DVD rental and video streaming. Instead, the company pressed subscribers into two separate plans starting at $8 each. The cheapest package for both DVD rental and video streaming shot up to $16 a month.
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Netflix (NFLX) chief Reed Hastings has predicted ambitiously that the company could get as many as 90 million U.S. subscribers.
But that goal is looking increasingly bleak. More competitors are stealing customers, and the company's growth is flattening out.
Netflix shares plunged Monday after the company said subscriber growth would slow. The company met analyst expectations for customers in the first quarter, reporting 23.4 million U.S. subscribers -- a 1.74 million bump from the end of December.But its projections for the second quarter were disappointing.
Post continues below.
The company said its U.S. online users would probably only grow to between 23.6 million and 24.2 million in the current quarter. That's only a net increase of between 200,000 and 800,000. Analysts were expecting a gain of 781,000, Bloomberg reports.
The number of DVD subscribers will likely drop by 740,000 to 1.14 million, to as little as 8.95 million. That's a far larger drop than the 623,000 analysts were expecting.
Netflix shares fell by more than 16% in after-hours trading from the stock's $101.84 close.
Netflix posted a loss for the quarter as its costs have ratcheted up, mainly from expanding its service internationally, but the company beat analyst expectations. Its first-quarter loss came in at $4.58 million, or 8 cents a share, which was less than the loss of 27 cents a share that Wall Street expected. Revenue rose 21% to $869.8 million, which was also better than the $865.5 million analysts expected.
Even though the company is focused on overseas expansion, it must keep growing its U.S. subscribers and fend off threats from Amazon (AMZN), Comcast (CMCSA), Coinstar's (CSTR) Redbox and a number of other deep-pocketed rivals developing video rental and streaming services.
The competition is so intense, in fact, that some analysts are beginning to think Netflix's U.S. numbers are closing in on a plateau. One analyst, Aaron Kessler of Raymond James, thinks U.S. subscribers may stall at 26.8 million this year, Bloomberg reports. An analyst at T. Rowe Price thinks the number could grow to 35 million.
Another analyst, Wedbush's Michael Pachter, said Monday on CNBC that the number of U.S. subscribers will start to drop in the third quarter of this year. He also thinks the company's stock price will drop. Netflix has lost a number of new films, he said, and subscribers will start to notice.
"You just keep looking for something to watch," Pachter said. He predicted that six months from now Netflix's share price will be half of current levels.
Netflix never recovered from its disastrous decision last year to end its $10 monthly combo of DVD rental and video streaming. Instead, the company pressed subscribers into two separate plans starting at $8 each. The cheapest package for both DVD rental and video streaming shot up to $16 a month.
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