Netflix slashes its forecast for subscriber gains after weak Q3
By Ryan Nakashima, AP
October 25, 2012, 12:10 am TWN
LOS ANGELES--Netflix slashed its prediction for how many U.S. video streaming subscribers it would add this year after sub-par third-quarter results, causing a sharp sell-off in its stock in after-hours trading.
The Los Gatos, California-based company said it added 1.2 million net streaming subscribers in the U.S. in the three months through September, which was on the low end of its forecast for gains between 1 million to 1.8 million.
Netflix didn't pinpoint the exact cause of the shortfall, but last quarter it said it worried that huge audiences for the Olympics would cut into viewing hours and sign-ups.
Viewing time per member increased 30 percent from a year ago and the percentage of people voluntarily canceling service was at the lowest point in the company's history. However Netflix said it was forced to turn off service to customers more often because it couldn't collect a valid credit or debit card.
Netflix blamed this inability to collect payment for higher “involuntary” cancellations. It said this was a natural result “as we grow more mainstream and attract more lower-income households.”
The disappointing subscriber figure caused Netflix to cut its estimate for full-year U.S. streaming subscriber additions to between 4.7 million and 5.4 million. Previously, Netflix predicted it would gain as many as 7 million domestic streaming subscribers by year's end.
It ended the quarter with 25.1 million U.S. streaming customers and 4.3 million in other countries. DVD-by-mail subscribers fell to 8.6 million from 13.9 million a year ago.
Netflix's stock sank US$11.04, or 16.2 percent, in after-hours trading to US$57.18.
In the latest quarter, the company earned US$7.7 million, or 13 cents per share, beating the 5 cents per share expected by analysts polled by FactSet.
Revenue rose 10 percent to US$905.1 million, in line with forecasts.
Netflix has said it would take the profits it makes from its declining DVD business and its growing U.S. streaming operations to fund an ambitious overseas expansion. But slowing growth at home looks likely to put a damper on that enthusiasm.
This month, Netflix rolled out streaming services in Denmark, Sweden, Norway and Finland. It already operates in Canada, the UK, Ireland and several Latin American countries.
The latest push will boost its international losses to a “peak” in the final quarter of the year, according to a letter by chief executive Reed Hastings and chief financial officer David Wells.
“We intend this to be our peak quarter of international losses, and expect international losses will decline quarter by quarter next year,” they said in a statement. “Once we've substantially reduced international losses, and with Netflix then being solidly profitable on a global basis, we will launch our next round of international expansion.”
Netflix predicted that its fourth-quarter earnings would range between a loss of US$13 million, or 23 cents per share, and a gain of US$2 million, or 4 cents per share. Analysts were expecting a loss of 5 cents per share.
The worst-case loss predicted by the company would push it into the red for the year, which would give the company its first annual loss in a decade.