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Netflix Quarterly Results Beat Estimates But Weak Subscriber Forecast Causes Shares To Plummet By 10%

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Netflix has just disclosed its financial results for the first quarter of 2016. And even though most numbers beat analyst expectations from Netflix , it was an extremely weak forecast of growth in the number of new subscribers in the second quarter which led shares of Netflix fall by as much as 10%.

The results of this quarter are significant for Netflix as it introduced its services in as many as 13o countries outside the US in January this year. And the impact of this massive expansion is clearly seen in the quarterly growth of subscribers.

Netflix added 4.51 million customers internationally, higher than its expectations of 4.35 million. Domestically also in the US, Netflix added 2.23 million new subscribers in the first quarter beating its own estimate of 1.75 million. With this, the total number of subscribers of Netflix has reached 81.5 million globally.

However, the problem begins when one looks at the forecast for the second quarter. According to Netflix, it expects to add 2.5 million new customers (two million international subscribers and 500000 US subscribers) in the second quarter.

And this is far below than numbers from the same period last year. During Q2, 2015, the company had added  2.37 million international customers and 900000 US customers amounting to about 3.3 million new subscribers. Especially keeping in mind the recent global expansion, investors had expected a much better forecast.

According to the company, they had registered a record growth in Q2 2015 due to launch in New Zealand and Australia. 

Our international forecast for fewer net adds than prior year is due to a tough comparison against the Australia/New Zealand launch,

the company said in the statement.

Furthermore, Chief Executive Officer Reed Hastings also attributed to the lack of content in local languages in other countries where Netflix has just entered and yet to reach full potential. Then there is also an impending increase in the prices in the US region as well as in foreign markets which may further impede the  subscriber growth.

However, Netflix is hopeful and is doing efforts to bring in local content as well as original programming in local languages to new countries.

In the coming quarters, Netflix plans to add more local languages, content, payment options and customer support.

said Hasting about company’s plans in India where it was launched in January.

In India, which is reportedly one of the strongest growth areas of Netflix, Netflix will be premiering its first Indian original “Brahman Naman” worldwide in June this year.

We acquired this great film Braham Naman at Sundance this year that we will be premiering around the world in June, and it really is a discovery of a great Indian director named Q who I think everyone is going to be talking about over the next few years,

said chief content officer Ted Sarandos during the conference call.

Netflix did not disclose the exact numbers of its Indian subscribers but according to analysts, the company has been witnessing the strongest adoption in India, South Africa, and Singapore since its launch.

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