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Netflix 2Q numbers - misses subscriber estimates

Netflix released it's second-quarter earnings after the US markets closed on Monday (July 16th). The shares took a pounding, down 14% in after-hours trade as the company missed on subscriber growth numbers for the first time in five consecutive quarters. The shares closed down 5.2% yesterday recovering most of its losses on the day. Netflix has now missed its forecast only three times in the last ten quarters.

US subscriber numbers showed 674 000 new additions as compared to the 1.23 million expected additions. The more exciting international business saw subscriber numbers come in at 4.47 million new additions, compared to the 5.11 million expected. Netflix now boasts 130.1 million subscribers globally, who enjoy binge watching classics like The Crown and The Legendary BoJack. Revenues were stronger showing a print of $3.91 billion another small miss compared to the $3.94 billion estimated by Reuters.

What added salt to the wound was the weaker guidance for the third quarter, where the CEO Reed Hastings said that they expect to 'only' grow subscriber numbers by 5 million; 650 000 in the US and 4.35 million internationally.

Investors biggest worry is that the company cannot grow as quickly now coming off its more significant base. The share price has already more than doubled this year making Netflix more valuable than media giant Comcast. There is no doubt that competition is rising as Hulu, Amazon, AT&T (HBO) and even Walmart are playing in the online streaming space, where there is less regulatory scrutiny as compared to traditional tv, dish and cable. However, the true opportunity lies in converting more people to "cut the cord" and go online. The fortunes of a company like Netflix lies in the widespread growth in faster internet penetration and the growing middle class across the globe.

The biggest challenge for Netflix going forward is retaining the converts and luring new bingers by having more entertaining content than what's out there. So I guess the question is: can Netflix replicate the same success its enjoyed from originals like Master of None, Narcos, Ozark, Stranger Things, House of Cards, 13 Reasons Why, Unbreakable Kimmy Schmidt, GLOW, Luke Cage, The Crown, Dear White People etc.? The answer includes even more spending on original content to make this a possibility, and the company expects to spend at least $10 billion this year to achieve this goal. As a long-term investor we hope this aggressive investment in new content yields great dividends in the future.

The chart below shows Netflix's subscriber growth number since 2011.

Infographic: Netflix Reaches 130 Million Subscribers | Statista You will find more infographics at Statista


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