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Netflix Shares Dive As Membership Growth Falls Short

Netflix Shares Dive As Membership Growth Falls ShortShares dropped over 25% following release of the results, with Netflix attributing the drop in membership growth to price rises.

Year-on-year member growth in the US was down from 1.29 million in the 2013 third quarter to 980,000 in this year’s third quarter, well short of Netflix’s forecast of 1.33 million new members.

“As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago,” Netflix stated in a letter to shareholders.

“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.”

Netflix has forecast taking on an additional 1.85 million US members in this year’s fourth quarter, down from the 2.33 million members added in last year’s corresponding quarter.

Internationally, Netflix grew its membership by 2.04 million, up from 1.44 million last year, however this again fell below its forecast of 2.36 million.

“For the prior three quarters, we under-forecasted membership growth,” Netflix wrote in its letter to shareholders. “This quarter we over-forecasted membership growth.”

Netflix ended the quarter with 37.22 million US members and 15.84 million international members.

“The Netflix myth is they’re going to get to 120 million subscribers,” The Wall Street Journal reported Wedbush Securities analyst Michael Pachter as stating, further noting “if growth is slowing, it looks like it will take them a lot longer to get there”.

Netflix stated, with per-member viewing and retention in the US “as strong as ever”, it does not think increased competition from piracy, TV Everywhere, Amazon Prime Instant Video, Hulu, and others is a major factor.

“There is no change to our view on the long-term attractiveness and US market size of internet television, and no change to our view of the ultimate size of our US membership,” Netflix stated.

Netflix recorded net income of US$59 million for third quarter, up from $32 million year-on-year, however its forecast of US$27 million for the fourth quarter represents a sharp decline from last year’s US$48 million.

Netflix, which launched in France, Germany, Austria, Switzerland, Belgium and Luxembourg in September, is said to have the Australian market in its short-term sights, with speculation it will launch in Australia in 2015.

Speculation has long persisted of the Netflix move, which has the potential to shake up the local television market, placing pressure on media providers to develop competitor services as viewers increasingly look to on-demand internet services in addition to free-to-air.

Last month, Nine Entertainment Co and Fairfax Media announced the formation of a joint venture to launch an Australian subscription video-on-demand service, StreamCo, stating it is expected to launch during the 2015 financial year

As reported by SmartHouse in July, Netflix has been tipped to launch in Australia in February 2015, and if that date slips July 2015.