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Netflix Post Worst Earnings Report Since 2011

For the first time since 2011, Netflix has suffered a dramatic drop-off in the number of its subscribers – losing approximately 130,000 in the US alone in Q2, while gaining only 2.7 million globally.

According to Bloomberg, this was Netflix’s worst earnings report since the company split its streaming and DVD business in 2011, which led to 800,000 subscribers leaving the company.

The news has led to an immediate stock drop for Netflix – falling more than 12% in after-hours trading.

CEO Reed Hastings blamed the losses on Netflix’s recent price hikes and a lack of new original content.

“Our missed forecast was across all regions, but slightly more so in regions with price increases,” Hastings said in a letter to shareholders.

“We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions.”

“Much of our domestic, and eventually global, Disney catalogue, as well as Friends, The Office, and some other licenced content will wind down over the coming years, freeing up budget for more original content.”

“From what we’ve seen in the past when we drop strong catalogue content, our members shift over to enjoying our other great content.”

However, Hastings’ feels positive about the future, with the company projecting seven million new subscribers from July through September.

He cites the immense popularity of Stranger Things – whose third seasons attracted record viewership for the streaming service – as well as new seasons starting for popular shows like The Crown and Orange is the New Black as major reasons for this.

Original films like set for release later in 2019, such as Martin Scorsese’s The Irishman, was also mentioned as a hook for new subscribers.

Netflix also strongly reiterated in the investor letter that it has no plans to start selling advertising.

“We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false,” Hastings said

“We believe we will have a more valuable business in the long-term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

“Consumers around the world continue to move from linear television to internet entertainment at a remarkable rate.”

“We forecast Q3 global paid net adds of seven million, with 6.2 million of those accounts coming from international markets.”

“Our internal forecast still currently calls for annual global paid net adds to be up year over year.”

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