Netflix cut US subscriber forecasts by two million users in its latest earnings report, causing its share price to drop by more than 17% after hours.
The US video-streaming firm said it added just 1.16 million domestic subscribers in the third quarter, at the low end of its guidance range of 24.9-25.7 million.
Though Netflix said it expects this to grow to 26.4-27.1 million in the fourth quarter, in its earnings call, CEO Reed Hastings said the firm “mis-predicted” at the start of the year when it estimated it would add seven million US streaming customers in 2012. He cut this prediction to five million.
Shares tumbled to US$56.50 yesterday, down from a market-close price of US$68.20.
“We’re feeling our way along as the streaming market grows, and we mis-predicted, but I would call that more of a forecasting error than anything else,” said Hasting s. “But in terms of actual performance of the business, to grow five million net additions domestically is substantial, and we feel good about that and about the growth next year.”
Netflix made net profit of US$8m in the quarter. Though this is down on the US$62m profit it made in the same quarter last year, due to expenses and international costs, it beat analyst predictions. Revenue came in at US$905m, an improvement on US$822m for the same period last year.
Looking forward, the firm said its movement into original programming will require more up-front cash payments than typical content licensing agreements, beginning in Q4 and increasing in 2013 – but said it had enough money to finance this.
Netflix added that its US business remains strong. Excluding international losses, it said it would generate over US$400m of operating income this year after covering global operating expenses.
However, Netflix said that, as expected, in Q4 it will “likely move to a consolidated loss because of our initial launch investment in the Nordics.”
When asked about global expansion on the earnings call, Hastings would not rule out a joint venture to help the firm move into Asia in the future, but said that was not its model for now in Europe.
“While we are not growing membership as fast as in 2010, we think that over time nearly all US households will be broadband households, nearly all video will be internet video, and that as our content and member experience continue to improve faster than competitors’, our long-term domestic market opportunity remains two to three times that of linear HBO,” said Hastings and chief financial officer David Wells in a letter to shareholders.